RAILROADS

RAILROADS AND AMERICAN ECONOMIC GROWTH:
A ‘‘MARKET ACCESS’’ APPROACH*
Dave Donaldson and Richard Hornbeck
This article examines the historical impact of railroads on the U.S. economy,
Downloaded from http://qje.oxfordjournals.org/ at University of Chicago D'Angelo Law Library on June 10, 2016
with a focus on quantifying the aggregate impact on the agricultural sector in
1890. Expansion of the railroad network may have affected all counties directly
or indirectly—an econometric challenge that arises in many empirical settings.
However, the total impact on each county is captured by changes in that county’s
‘‘market access,’’ a reduced-form expression derived from general equilibrium
trade theory. We measure counties’ market access by constructing a network
database of railroads and waterways and calculating lowest-cost county-to-
county freight routes. We estimate that county agricultural land values increased
substantially with increases in county market access, as the railroad network
expanded from 1870 to 1890. Removing all railroads in 1890 is estimated to
decrease the total value of U.S. agricultural land by 60%, with limited potential
for mitigating these losses through feasible extensions to the canal network or
improvements to country roads. JEL Codes: N01, N51, N71, F1, O1, R1.
I. Introduction
Railroads spread throughout a growing United States in the
nineteenth century as the economy rose to global prominence.
Railroads became the dominant form of freight transportation,
and areas around railroad lines prospered. The early historical
literature often presumed that railroads were indispensable to
the U.S. economy or at least very influential for economic
growth. Our understanding of the development of the U.S. econ-
omy is shaped by an understanding of the impact of railroads and,
more generally, the impact of market integration.
In Railroads and American Economic Growth, Fogel (1964)
transformed the academic literature by using a ‘‘social saving’’

For helpful comments and suggestions, we thank Larry Katz, anonymous ref-
erees, and many colleagues and seminar participants at Boston University, Brown,
Chicago, Colorado, Dartmouth, EIEF, George Mason, George Washington,
Harvard, LSE, NBER, Northwestern, Santa Clara, Simon Fraser, Stanford,
Stanford GSB, Toronto, Toulouse, UBC, UCL, UC Berkeley, UC Davis, UC
Irvine, UC Merced, UC San Diego, Warwick, and the ASSA and EHA conferences
(including our discussants, Gilles Duranton and Jeremy Atack). We are grateful to
Jeremy Atack and coauthors for sharing their data and our conversations. Georgios
Angelis, Irene Chen, Andrew Das Sarma, Manning Ding, Jan Kozak, Julius
Luettge, Meredith McPhail, Rui Wang, Sophie Wang, and Kevin Wu provided ex-
cellent research assistance. This material is based on work supported by the
National Science Foundation under Grant No. 1156239.
! The Author(s) 2016. Published by Oxford University Press, on behalf of the President
and Fellows of Harvard College. All rights reserved. For Permissions, please email:
journals.permissions@oup.com
The Quarterly Journal of Economics (2016), 799–858. doi:10.1093/qje/qjw002.
Advance Access publication on February 28, 2016.
799
800 QUARTERLY JOURNAL OF ECONOMICS
methodology to focus attention on counterfactuals: in the absence

of railroads, agricultural freight transportation by rivers and
canals would have been only moderately more expensive along
most common routes. Fogel argued that small differences in
freight rates caused some areas to thrive relative to others, but
railroads had only a small aggregate impact on the U.S. agricul-
tural sector. This social saving methodology has been widely ap-
plied to transportation improvements and other technological
innovations, though many scholars have discussed both practical
and theoretical limitations of the approach (see, e.g., Lebergott
1966; Nerlove 1966; McClelland 1968; David 1969; White 1976;
Fogel 1979; Leunig 2010).1
There is an appeal to a methodology that directly estimates
the impacts of railroads, using increasingly available county-level
data and digitized railroad maps. Recent work has compared
counties that received railroads to counties that did not (Haines
and Margo 2008; Atack and Margo 2011; Atack et al. 2010; Atack,
Haines, and Margo 2011), and similar methods have been used to
estimate impacts of railroads in modern China (Banerjee, Duflo,
and Qian 2012) or highways in the United States (Baum-Snow
2007; Michaels 2008). These studies estimate relative impacts of
transportation improvements; for example, due to displacement
and complementarities, areas without railroads and areas with
previous railroads are also affected when railroads are extended
to new areas.
This article develops a methodology for estimating aggregate
impacts of railroads. We argue that it is natural to measure how
expansion of the railroad network affects each county’s ‘‘market
access,’’ a reduced-form expression derived from general equilib-
rium trade theory, and then estimate how enhanced market
access is capitalized into each county’s value of agricultural
land. A county’s market access increases when it becomes
cheaper to trade with another county, particularly when that
other county has a larger population and higher trade costs
with other counties. In a wide class of multiple-region models,
changes in market access summarize the total direct and indirect
1. One alternative approach is to create a computational general equilibrium

model, with the explicit inclusion of multiple regions separated by a transportation
technology (e.g., Williamson 1974; Herrendorf, Schmitz, and Teixeira 2009).
Cervantes (2013) presents estimates from a calibrated trade model. Swisher
(2014) calibrates a simpler economic model but models the strategic interaction
between railroad and canal companies in building networks.
RAILROADS AND AMERICAN ECONOMIC GROWTH 801
impacts on each county from changes in the national railroad

network.
We measure counties’ market access by constructing a net-
work database of railroads and waterways and calculating
lowest-cost county-to-county freight routes. As the national rail-
road network expanded from 1870 to 1890, we estimate that
county-level increases in market access were capitalized into sub-
stantially higher agricultural land values.
Another empirical advantage to estimating the impact of
market access, rather than estimating the impact of local railroad
density, is that counties’ market access is influenced by changes
elsewhere in the railroad network. The estimated impact of
market access on agricultural land values is largely robust to
using only variation in access to more distant markets or control-
ling for changes in counties’ own railroad track, despite concerns
about exacerbating attenuation bias from measurement error.
Another identification approach uses the fact that counties
close to navigable waterways are naturally less dependent on
expansion of the railroad network to obtain access to markets.
The estimated impact of market access is larger, but much less
precise, when instrumenting for changes in market access with
counties’ initial market access through waterways only.
The article then estimates the aggregate impact of railroads
on the agricultural sector in 1890, based on the calculated decline
in counties’ market access without railroads and the estimated
impact of market access on agricultural land values. Removing all
railroads in 1890 is estimated to lower the total value of U.S.
agricultural land by 60.2%. This reduction in agricultural land
value generates annual economic losses equal to 3.22% of GNP,
which is moderately larger than comparable social saving esti-
mates by Fogel (1964). Railroads were critical to the agricultural
sector, though the total loss of all agricultural land value would
only generate annual economic losses equal to 5.35% of GNP.
Notably, these and Fogel’s estimates neglect many other chan-
nels through which railroads may have affected other economic
sectors and/or technological growth.2
2. For example, railroads may have had substantial economic impacts

through: enabling the transportation of perishable or time-sensitive products,
spreading access to natural resources, generally benefiting manufacturing through
increased scale and coordination, encouraging technological growth, and increas-
ing labor mobility.
The initial counterfactual analysis assumes that the popula-

tion distribution is held fixed in the counterfactual, but then we
seek to relax that assumption. First and most simply, we report
similar impacts on agricultural land values when setting the
counterfactual distribution of population equal to the historical
distribution of population in 1870, 1850, or 1830. Second, drawing
on the full structure of the model, we solve for the counterfactual
distribution of population across U.S. counties. Holding the total
U.S. population fixed, the estimated impacts on agricultural land
are insensitive to the substantial reallocation of workers across
the country.
The initial counterfactual analysis also assumes that worker
utility is held fixed in the counterfactual, such that all welfare
impacts of railroads are capitalized into land values. For worker
utility to be held fixed in the counterfactual, however, the model’s
structure predicts that total U.S. population would need to fall
substantially. An alternative scenario that we consider holds the
total U.S. population fixed but where worker utility is then de-
termined endogenously (and would need to fall substantially in
the counterfactual without railroads). In this case land values
decline substantially less than in the fixed worker utility case
because much of the economic loss is shifted between production
factors (i.e., from land to labor). In either case, the counterfactual
impacts on population and welfare reflect additional aggregate
losses from the removal of railroads, which were not reflected in
our baseline estimates or in Fogel’s estimates that are based on
losses in agricultural land value only.
Finally, we consider whether alternative transportation im-
provements had the potential to substitute for the absence of rail-
roads. First, in the absence of railroads, additional canals might
have been constructed to bring many areas closer to low-cost wa-
terways (Fogel 1964). However, we measure substantial declines
in counties’ market access when replacing railroads with the ex-
tended canal network Fogel proposed. The proposed canals miti-
gate only 13% of the losses from removing the railroad network,
though the implied annual economic benefits of these hypotheti-
cal canals would have exceeded their estimated annual capital
costs. Second, in the absence of railroads, country roads might
have been improved to reduce the costs of long-distance wagon
transportation (Fogel 1964). Replacing railroads with lower
wagon transportation costs would have mitigated 21% of the
losses from removing the railroad network. Most of this benefit
to improved country roads would have continued in the presence

of railroads, however, which suggests that railroads did not sub-
stantially discourage improvements in country roads. The ab-
sence of railroads might also have increased waterway shipping
rates (Holmes and Schmitz 2001), which is estimated to exacer-
bate by 20% the economic losses from removing railroads.
In summary, revisiting the historical impact of railroads on
the U.S. economy suggests a larger aggregate economic impact
from railroads and market integration. Fogel (1964) calculates
the impact of railroads based on willingness to pay for the trans-
portation of agricultural goods, and our methodology is based on a
similar willingness to pay for agricultural land.3 Beyond the sub-
stantial effects on agricultural land value, however, our analysis
anticipates substantial declines in consumer welfare and total
population in the absence of the railroads. Our estimates neglect
further potential impacts on other sectors and technological
growth, yet we hope our ability to measure and analyze impacts
of ‘‘market access’’ will spur further research on the aggregate
impacts of railroads throughout the U.S. economy.4
3. We see our methodology as a natural extension of Fogel’s intuition, drawing

on recent advances in trade theory, county-level data, and spatial computational
tools. Whereas Fogel adds up the impact of railroads partly by assuming the com-
plete loss of agricultural land more than 40 miles from a natural waterway, we
directly estimate the impact of railroads on all counties’ agricultural land values.
4. In related work using a similar model, Redding and Sturm (2007) estimate
the impact on population from changes in market access following the division and
reunification of Germany, Hanson (2005) studies the correlation between U.S.
county-level wages and county-level market access from 1970 to 1990, and
Redding and Venables (2004) and Head and Mayer (2011) study the relationship
between national GDP and country market access. Donaldson (2015) estimates the
income benefits from India’s railroads and shows that these are consistent with an
Eaton and Kortum (2002) model similar to that used here. In contrast to Donaldson
(2015), this article measures the impact of railroads on market access (as derived
from an Eaton-Kortum model extended to allow for labor mobility) to estimate the
aggregate impact of railroads and evaluate the impact of counterfactual scenarios.
This article’s methodological approach is more suited to settings with high mobility
of labor, which appears to reflect the historical U.S. economy more than the Indian
economy. The concept of market access has been useful for empirical work (sur-
veyed by Redding 2010), though this article is the first to leverage the concept of
market access to estimate aggregate effects of place-based treatments (such as
transportation infrastructure) from spatial comparisons using micro-geographical
data. Redding (2010) highlights the surprising absence of research in this field that
uses the price of an immobile factor, such as our use of land values, to estimate the
benefits to each location in the presence of mobile factors.
More broadly, this article takes on the general methodologi-

cal challenge of estimating aggregate treatment effects in empir-
ical settings with substantial treatment spillover effects. Local
railroad construction affects agricultural land values in all coun-
ties, to some degree, through interlinked trade networks. If rail-
roads’ spillover impacts were confined to nearby areas, then the
unit of analysis might be aggregated (e.g., Miguel and Kremer
2004). As in many empirical settings, however, sufficient aggre-
gation is empirically intractable. Our proposed solution uses eco-
nomic theory to characterize how much railroads change each
area’s market access; once the intensity of treatment is defined
to reflect both direct and indirect impacts, relative empirical com-
parisons estimate the aggregate treatment effect of railroads on
land values.5 Using economic theory as a guide, it is possible to
estimate aggregate treatment effects in a reduced-form manner
using relative variation. Extended results may then draw further
on the model’s structure. Empirical research is increasingly esti-
mating relative magnitudes by comparing areas more affected or
less affected by some plausibly exogenous variation in treatment;
we hope to encourage an extension of this research agenda to
address the many important questions that are more aggregate
in nature.
The rest of the article is organized as follows. Section II re-
views and extends Fogel’s analysis of the railroads’ impact on the
agricultural sector. Section III discusses our data collection and,
in particular, our construction of a network database for calculat-
ing county-to-county transportation costs. Section IV derives our
theoretical notion of ‘‘market access’’ and the resulting main em-
pirical specification. Section V presents empirical estimates of the
impact of changes in market access on changes in agricultural
land value from 1870 to 1890. Section VI presents the baseline
counterfactual impacts in 1890 from removing the railroad net-
work and summarizes the results’ robustness. Section VII ana-
lyzes counterfactual impacts on population and worker utility.
Section VIII analyzes counterfactual impacts from replacing the
railroad network with alternative transportation improvements.
5. In the absence of an economic model, the spatial econometrics literature

provides estimators for when treatment spillovers are a known function of geo-
graphic or economic distance (Anselin 1988). Estimation of aggregate treatment
effects requires a cardinal ranking of how much areas (or people) are exposed to the
treatment, whereas an ordinal ranking is insufficient.
Section IX concludes. An Online Appendix contains accompany-

ing material: additional details on the data construction and sum-
mary statistics, additional details on the robustness checks and
the accompanying tables, and supplementary theoretical results
from an extended version of our baseline model.
II. U.S. Railroads and ‘‘Social Saving’’ Estimates
By 1890, expansion of the railroad network had enabled a
dramatic shift westward in the geographic pattern of agricultural
production. Large regional trade surpluses and deficits in agri-
cultural goods reflected the exploitation of comparative advan-
tage. Fogel (1964) developed a ‘‘social saving’’ methodology for
calculating the aggregate impact of railroads on the agricultural
sector. We develop a different ‘‘market access’’ methodology for
estimating the aggregate impact of railroads on the agricultural
sector, although some aspects of our approach draw on Fogel’s
intuition. It is therefore useful to begin with a summary of
Fogel’s social saving analysis. We also take the opportunity to
extend some of his calculations, using modern spatial analysis
tools and digitized county-level data.
Fogel (1964) estimated that the social saving from railroads
in the agricultural sector in 1890 was no more than 2.7% of GNP.
He divided this impact into that coming from inter-regional trade
(0.6%) and intraregional trade (2.1%). For inter-regional trade,
defined as occurring from 9 primary markets in the Midwest to 90
secondary markets in the East and South, freight costs were only
moderately cheaper with the availability of railroads than when
using only natural waterways and canals. Multiplying the differ-
ence in freight costs (with and without railroads) by the quantity
of transported agricultural goods (in 1890), Fogel calculated the
annual inter-regional social saving from railroads to be no more
than $73 million or 0.6% of GNP. This number is proposed as an
upper bound estimate because the approach assumes perfectly
inelastic demand for transport, whereas the quantity of trans-
ported goods should be expected to decline with increased trans-
portation costs.6
6. Indeed, the total cost of agricultural interregional shipments would have

nearly doubled in the absence of railroads.
For intraregional trade, defined as the trade from farms to

primary markets, the effect of railroads was mainly to reduce
distances of expensive wagon transportation. In the absence of
railroads, farms would have incurred substantially higher costs
in transporting goods by wagon to the nearest waterway to be
shipped to the nearest primary market. In areas more than 40
miles from a waterway, wagon transportation may have become
prohibitively expensive; indeed, Fogel referred to all land more
than 40 miles from a navigable waterway as the ‘‘infeasible
region’’ because it may have become infeasible for agricultural
production if railroads were removed. Figure I, Panel A, largely
reproduces Fogel’s map of areas within 40 miles of a navigable
waterway (shaded black), with the addition of areas within 40
miles of a railroad in 1890 (shaded light gray). Fogel bounded
the economic loss in the infeasible region by the value of agricul-
tural land in areas more than 40 miles from a waterway, which he
calculates to generate approximately $154 million in annual rent.
Adding the additional increase in transportation costs within the
feasible region, which is bounded by $94 million using a similar
approach to the inter-regional analysis, Fogel calculated the total
annual intraregional impact to be no more than $248 million or
2.1% of GNP.
Fogel’s total social saving estimate of $321 million, or 2.7% of
GNP, is generally interpreted as indicating a limited impact of
the railroads, although the total loss of all agricultural land could
only generate annual losses of $642 million or 5.35% of GNP.
Fogel’s methodology is typically associated with the inter-
regional social saving calculation and the analogous approach
for the intraregional impact in the feasible region, though the
annual rents from land value in the infeasible region is the larg-
est component of the total estimate. Fogel emphasized that losses
in the infeasible region may well be overstated, as the railroad
network could have been replaced with an extended canal net-
work to bring most of the infeasible region (by value) within 40
miles of a waterway. Figure I, Panel B, shows that much of the
area beyond 40 miles from a navigable waterway would be within
40 miles of canals that might plausibly have been built if rail-
roads did not exist (shaded dark gray). Fogel estimated that these
canals would mitigate 30% of the intraregional impact from re-
moving railroads.
Fogel faced a number of challenges in calculating the intrar-
egional impact of railroads, some of which can be partly overcome
FIGURE I
Distance Buffers in 1890 around Waterways, Railroads, and Proposed Canals
In Panel A, areas shaded light gray are within 40 miles of a railroad in 1890
but not within 40 miles of a waterway (shaded black). In Panel B, areas shaded
dark gray are further than 40 miles from a waterway but within 40 miles of
Fogel’s proposed canals. Panels C and D are equivalent for 10-mile buffers.
QUARTERLY JOURNAL OF ECONOMICS
Continued
FIGURE I
808
by using modern computer software and digitized county-level

data. One challenge was in measuring the area of the infeasible
region, which is more accurate with the benefit of modern com-
puter software. Using digitized maps of Fogel’s waterways and
county-level data on agricultural land values (as opposed to state-
level averages), we calculate a $186 million annual return on
agricultural land in the infeasible region that is only moderately
larger than Fogel’s approximation of $154 million.7 Consistent
with 40 miles being a reasonable cutoff distance for the infeasible
region, we calculate an annual return of only $5 million on agri-
cultural land more than 40 miles from a waterway or railroad in
1890 (an infeasible calculation in Fogel’s era).
Fogel faced another challenge in calculating the intraregio-
nal social saving in the feasible region. Data limitations required
a number of practical approximations, and there are theoretical
concerns about whether an upper bound estimate is meaningful
given the potentially large declines in transported goods without
railroads. An alternative approach, extending Fogel’s treatment
of the infeasible region, is to assume that agricultural land de-
clines in value the further it is from the nearest waterway or
railroad. A simple implementation of this idea, though computa-
tionally infeasible in Fogel’s era, is to assume that land value
decays linearly as it lies between 0 miles and 40 miles from
the nearest waterway or railroad. Using modern computer soft-
ware, we can calculate the fraction of each county within arbi-
trarily small distance buffers of waterways and/or railroads.8
7. Unless otherwise noted, we use Fogel’s preferred mortgage interest rate

(7.91%) to convert agricultural land values to an annual economic value. We also
express annual impacts as a percent of GNP using Fogel’s preferred measure of
GNP in 1890 ($12 billion).
8. In practice, we take a discrete approximation to this linear decay function
and assume that agricultural land loses 100% of its value beyond 40 miles, 93.75% of
its value between 40 and 35 miles, 81.25% of its value between 35 and 30 miles, and
so forth until losing 6.25% of its value between 5 and 0 miles. We calculate the share
of each county that lies within each of these buffer zones (e.g., between 40 miles and
35 miles from a waterway or railroad). In addition, to avoid overstating the impact
of railroads, we modify Fogel’s calculation of the infeasible region to also reflect
counties’ imperfect access to railroads: since no county has all of its land within zero
miles of a waterway or railroad, all 1890 county land values already capitalize some
degree of imperfect access. To calculate percent declines off the correct base, we
adjust observed county agricultural land values to reflect their implied value if not
for distance to a waterway or railroad. In the end, we calculate the implied decline in
land value based on each county’s land share within each five-mile distance buffer of
Implementing this approach, we calculate the annual intraregio-

nal impact of removing railroads to be $325 million or 2.7% of
GNP.
Figure I, Panel C, shows smaller geographic buffers around
waterways and railroads. In contrast to the 40-mile buffers in
Panel A, Panel C shows 10-mile buffers that reflect the average
wagon haul from a farm to a rail shipping point in 1890. The
comparative advantage of railroads’ high density is more appar-
ent at smaller distance buffers. Panel D adds 10-mile buffers
around the proposed canals, which mainly run through sections
of the Midwest and Eastern plains. Replicating the analysis of
distance buffers, we calculate an annual loss of $225 million or
1.9% of GNP when replacing railroads with the proposed canals.
This preliminary exercise finds that the proposed canals mitigate
31% of the intraregional impact from removing railroads, which
is very close to Fogel’s original estimate of 30%.
The waterway network, particularly with extended canals, is
moderately effective in bringing areas near some form of low-cost
transportation. Construction of railroads was hardly limited to
providing a similarly sparse network, however, and our later em-
pirical estimates will show that high-density railroad construc-
tion was particularly effective in providing nearby low-cost routes
to markets.
Our empirical analysis will extend much of Fogel’s intuition
for evaluating railroads’ aggregate impact on the agricultural
sector in 1890.9 We maintain Fogel’s focus on the agricultural
sector, as nonagricultural freight was geographically concen-
trated in areas with low transportation costs along waterways.
We build on Fogel’s intuition that the value of agricultural land,
as an immobile factor, should reflect the cost of getting agricul-
tural goods to market. We choose transportation cost parameters
to be comparable to Fogel’s chosen values (discussed in Section
III.A) but explore robustness to these parameter choices in
Section VI.B and the Online Appendix. Crucially, rather than
a waterway and subtracting the county’s land share within that buffer of a water-
way or railroad.
9. There has been extensive debate—surveyed by Fogel (1979)—regarding the
social saving methodology and its application to evaluating the aggregate impact of
railroads. We do not relitigate these issues, as most do not relate directly to our
alternative methodological approach. Where relevant, we address some of the as-
sociated issues.
follow Fogel in assuming a relationship between agricultural land

values and the transportation network, we estimate this relation-
ship. Rather than follow Fogel in assuming where goods are
transported, we use insights from a general equilibrium trade
model to help measure how counties value the transportation
network. In particular, we measure how expansion of the railroad
network affects counties’ market access and then estimate the
impact of market access on agricultural land values. We then
calculate the implied impact on land values from decreases in
market access if railroads were eliminated, if railroads were
replaced with the proposed canals, or under other counterfactual
scenarios.
III. Data Construction

This article uses a new data set on predicted county-to-
county freight transportation costs, calculated using a newly con-
structed geographic information system (GIS) network database.
This network database shares some similarities to a hypothetical
historical version of Google Maps, as a digital depiction of all
journeys that were possible in 1870 and 1890 using available rail-
roads, canals, natural waterways, and wagons.
Our measurement of market access relies on three compo-
nents: (i) transportation cost parameters that apply to a given
unit length of each transportation mode (railroad, waterway,
and wagon); (ii) a transportation network database that maps
where freight could move along each transportation mode; and
(iii) the computation of lowest-cost freight routes along the net-
work for given cost parameters. In this section, we describe the
construction of these components and some data limitations.
III.A. Transportation Cost Parameters

Our guiding principle in choosing transportation cost param-
eters has been to follow Fogel’s choice of these same parameters.
We therefore set railroad rates equal to 0.63 cents per ton-mile
and waterway rates equal to 0.49 cents per ton-mile.10 Trans-
shipment costs 50 cents per ton, incurred whenever transferring
10. Rates reflect an output-weighted average of rates for transporting grain and
meat. Waterway rates include insurance charges for lost cargo (0.025 cent), inven-
tory and storage costs for slower transport and non-navigable winter months (0.194
cent), and the social cost of public waterway investment (0.073 cent).
goods to/from a railroad car, river boat, canal barge, or ocean

liner.11 Wagon transportation costs 23.1 cents per ton-mile, de-
fined as the straight-line distance between two points.12 We later
highlight some potentially important simplifications embedded in
these cost parameter choices and explore the results’ robustness
to alternative transportation cost parameters.
Because wagon transportation is much more expensive than
railroad or waterway transportation, the most important aspects
of network database construction concern the required distances
of wagon transportation. Indeed, Fogel (1964) and Fishlow (1965)
both emphasized that railroads mainly lowered transportation
costs by decreasing expensive wagon transportation through
the interior of the United States.
III.B. Transportation Network Database

Creation of the network database begins with digitized maps
of constructed railroads around 1870 and 1890. We are grateful to
Jeremy Atack and co-authors for providing these initial GIS rail-
road files (Atack 2013).13 These railroad files were originally cre-
ated to define mileage of railroad track by county and year; by
contrast, for our purposes, railroad lines are modified to ensure
that GIS software recognizes that travel is possible through the
railroad network.14
11. Fogel considers trans-shipment charges as a subcategory of water rates, but

our modeling of trans-shipment points allows for a unified treatment of Fogel’s
inter-regional and intraregional scenarios. Fogel’s sources record higher railroad
freight costs per ton-mile for shorter routes, but we approximate these higher costs
with a 100-cent fixed fee and a 0.63-cent fee per mile.
12. This rate reflects a cost of 16.5 cents per mile traveled and Fogel’s adjust-
ment factor of 1.4 between the shortest straight-line distance and miles traveled.
13. First, year-specific maps of railroads are ‘‘georeferenced’’ to U.S. county
borders. Second, railroad lines are hand-traced in GIS software to create a digital
map of railroad line locations. The best practical approach has been to trace railroad
lines from excellent maps in 1911 (Whitney and Smith 1911) and then remove lines
that do not appear in maps from 1887 (Cram 1887) and 1870 (Colton 1870).
14. We use GIS topology tools to ensure exact connections between all railroad
line segments. Hand-traced railroad lines often contain small internal gaps that we
have ‘‘snapped’’ together, though we have tried to maintain these gaps when ap-
propriate (e.g., across the Mississippi River in the absence of a railroad bridge). The
default option in GIS is for intersecting lines to reflect an overpass without a con-
nection, but we have broken the network into segments that permit turns at each
intersection. These modifications to the railroad network have little effect on total
railroad track mileage by county and year. To minimize measurement error in
The second step adds the time-invariant locations of canals,

navigable rivers, and other natural waterways. We use Fogel’s
definition of navigable rivers, which are enhanced to follow nat-
ural river bends.15 For lakes and oceans, we saturate their area
with ‘‘rivers’’ that allow for a large number of possible routes.16
Trans-shipment costs are incurred whenever freight is trans-
ferred to/from one of the four transportation methods: railroad,
canal, river, and lake or ocean.17
The third step connects individual counties to the network of
railroads and waterways. We measure average travel costs be-
tween counties by calculating the travel cost between the geo-
graphical center (or centroid) of each pair of counties. County
centroids must be connected to the network of railroads and wa-
terways; otherwise, lowest-cost travel calculations assume that
freight travels freely to the closest railroad or waterway. We
create wagon routes from each county centroid to each nearby
type of transportation route in each relevant direction.18
Because the network database only recognizes lines, we also
create direct wagon routes from every county centroid to every
other county centroid within 300 km.19
changes, we created a final 1890 railroad file and modified that file to create a
version for 1870 that omits lines constructed between 1870 and 1890.
15. Fogel’s classification of ‘‘navigable’’ rivers may be overly generous in some
cases (Atack 2013).
16. We do not permit direct access to lakes and oceans at all points along the
coast; rather, we restrict access to ‘‘harbors’’ where the coast intersects interior
waterways. We create additional ‘‘harbors’’ where the railroad network in 1911
approaches the coastline, which also permits direct ‘‘wagon’’ access to the coast at
these points.
17. Overlapping railroads and waterways do not connect by default; instead, we
create connections among railroads and waterways to allow for fixed trans-ship-
ment costs. The need to include trans-shipment costs is the main reason it is not
possible to model the network using a raster, assigning travel costs to each map
pixel.
18. Many such connections were created by hand, which raises the potential for
errors, but we have used GIS topology tools to ensure that these connections are
exactly ‘‘snapped’’ and classified correctly by type (centroid-to-railroad, centroid-to-
river, etc.).
19. The direct wagon routes are restricted to be over land, but there is no ad-
justment for mountains or other terrain; in practice, the long-distance wagon routes
are already very costly. The cost of wagon transportation also already includes an
adjustment for the general inability to travel in straight lines along the most direct
route.
The fourth step refines centroid-to-network connections due

to the importance of wagon distances to overall freight costs. For
example, when a railroad runs through a county, the centroid’s
nearest distance to a railroad does not reflect the average dis-
tance from county points to a railroad.20 We create 200 random
points within each county, calculate the distance from each point
to the nearest railroad, and take the average of these nearest
distances. We then adjust the cost of travel along each centroid
connection to within-county railroads to reflect that county’s av-
erage travel cost to a railroad. We repeat this procedure for cen-
troid connections to navigable rivers and canals. This refinement
to the network database allows the empirical analysis to exploit
precise variation on the intensive margin of county access to rail-
roads and waterways as the density of the railroad network in-
creases from 1870 to 1890.
Figure II shows part of the created network database. Panel
A shows natural waterways, including the navigable rivers and
routes within lakes and oceans. Panel B adds the canal network,
which is highly complementary with natural waterways. Panel C
adds railroads constructed in 1870, and Panel D adds railroads
constructed between 1870 and 1890. Early railroads were com-
plementary with the waterway network; by 1870 and especially
by 1890, however, the railroad network is more of a substitute for
the waterway network.
As a summary, Online Appendix Table 1 lists each segment
of the transportation network database, a brief description, and
its assigned cost.
III.C. Limitations of the Network Database

There are several limitations of the constructed network
database. First, it is mainly restricted to transportation linkages
within the United States.21 The data only include U.S. counties’
20. Fogel recognized the importance of measuring this within-county distance

and his ideal solution was to break each county into small grids and take the aver-
age of nearest distances from each grid to a railroad. However, because of technical
limitations, Fogel approximated this average distance using one third of the dis-
tance from the farthest point in a county to a railroad.
21. There are two exceptions. First, the network database includes a Canadian
railroad line between New York and Michigan. Second, the database includes a
waterway route from the Pacific Ocean to the Atlantic Ocean (i.e., around Cape
Horn), and the empirical analysis explores the results’ robustness to varying the
cost of this waterway connection.
FIGURE II
Constructed Network Database (Partial)
Panel A shows all natural waterways, including navigable rivers and routes
across lakes and oceans. Panel B adds the canal network (as actually con-
structed in 1870 and 1890). Panel C adds railroads constructed in 1870, and
then Panel D adds railroads constructed between 1870 and 1890.
Continued
FIGURE II
816
access to other U.S. counties. As a robustness check, however, we

incorporate international markets by assigning additional prod-
uct demand and supply to U.S. counties with major international
ports.
Second, freight rates are held constant throughout the net-
work database. Freight rates may vary with local demand and
market power in the transportation sector, though local variation
in freight rates would then be partly endogenous to local
economic outcomes. Thus, there are econometric advantages to
using Fogel’s average national rates. We hold rates fixed in 1890
and 1870, such that measured changes in trade costs and market
access are determined by changes in the railroad network.
Third, freight rates are not allowed to vary by direction.
Some freight rates might vary by direction due to back-haul
trade relationships or waterway currents, so we explore the re-
sults’ robustness to different waterway and railroad rates. Wagon
rates may dramatically overstate some transportation costs in
Western states where cattle were driven to market, though we
also report estimates when excluding the Western states.22
Furthermore, we examine how particular regions are influencing
the results by allowing the impact of market access to vary by
region.
Fourth, there are no congestion effects or economies of scale
in transporting goods. We do not restrict locations where trains
can turn or switch tracks, so actual railroad transportation routes
may be less direct. We also do not measure differences in railroad
gauges, which required some additional costs in modifying rail-
road cars and tracks. In robustness checks, we allow for higher
railroad costs that reflect less direct routes or periodic trans-ship-
ment within the railroad network.
Fifth, we do not directly consider the speed or bulk of freight
transportation. While railroads might transform the long-
distance trade of time-sensitive goods, we maintain Fogel’s
focus on railroads’ aggregate importance in the bulk transporta-
tion of storable agricultural commodities. The assumed waterway
rate, taken from Fogel, includes an adjustment for higher storage
and inventory costs associated with slower water transportation,
which makes up 40% of the total waterway rate.
22. The Western regions are not central to the empirical analysis, which draws
on within-state variation in changes in market access.
Overall, we should expect that measurement of transporta-

tion costs will be robust to even large percent differences in the
chosen railroad and waterway rates. Recall that 10 miles of
wagon transportation are roughly equivalent to 375–475 miles
of railroad or waterway transportation. Thus, the estimated
transportation costs are dominated by the order-of-magnitude
difference between the cost of wagons and the cost of railroads
or waterways.23
III.D. Transportation Route Cost Calculations

We use the complete network database to calculate the
lowest-cost route between each pair of counties, that is, 5 million
calculations.24 Initially, we calculate the lowest-cost routes under
two scenarios: (i) the wagon, waterway, and railroad network in
1870; and (ii) the wagon, waterway, and railroad network in 1890.
These transportation costs are used to calculate counties’ market
access in 1870 and 1890, so we can estimate the impact of chang-
ing market access on changes in land values. For the later anal-
ysis, we calculate the lowest-cost routes under counterfactual
scenarios: removing the 1890 railroad network; replacing the
1890 railroad network with an extended canal network; replacing
the 1890 railroad network with improved country roads (de-
creased wagon freight rates); and removing the 1890 railroad
network and increasing water freight rates (due to decreased
competition).
III.E. County-Level Census Data

County-level data are drawn from the U.S. Censuses of
Agriculture and Population (Haines 2005). The two main vari-
ables of interest are the total value of agricultural land and the
total population. We adjust data from 1870 to reflect 1890 county
boundaries (Hornbeck 2010).
Online Appendix Figure 1 maps the 2,327 counties included
in the main regression analysis, which includes all counties with
reported land value data in 1870 and 1890. Online Appendix
Figure 2 maps a larger sample of 2,782 counties included in the
23. In robustness checks, we also allow for lower transportation costs by wagon.
24. In principle, it is a daunting task to find the optimal route between two
points on such a dense network; in practice, the computation is improved dramat-
ically by applying Dijkstra’s algorithm (see, e.g., Ahuja, Magnanti, and Orlin 1993,
for a textbook treatment).
counterfactual analysis, which includes 455 additional counties

that report land value data in 1890 (but not in 1870). In our cal-
culation of counties’ market access, we calculate counties’ access
to all other counties that existed in that period, regardless of
whether those other counties are included in the regression
sample.
For the data on agricultural land value, the reported data
include the combined value of agricultural land, buildings, and
improvements. We follow Fogel in deflating the reported census
data to reflect the ‘‘pure’’ value of agricultural land (Fogel 1964,
pp. 82–83), such that gains in land value reflect true economic
gains and not the cost of fixed investments.25 In robustness
checks, we explore further adjustments to the land value data
that reflect county-level changes in land settlement or land
improvement.
For the data on population, there are some known challenges
with undercounting in the census. In robustness checks, we
adjust population data to reflect undercounting that is systemat-
ically more severe in 1870 and in the South (Hacker 2013). We
also explore adjusting population data to reflect the presence of
trade with international markets, inflating the population in
major U.S. ports to reflect the value of imports and exports (di-
vided by income per capita).
The Online Appendix provides some additional details on
these county-level data. Appendix Table 2 provides summary sta-
tistics on county characteristics in 1870, in 1890, and changes
between 1870 and 1890. Appendix Figure 3 maps counties’
change in land value between 1870 and 1890, with darker
shades representing greater increases in land value.
IV. A Market Access Approach to Valuing Railroads

The empirical analysis is guided by a model of trade among
U.S. counties that specifies how each county is affected by
25. Fogel reports the ‘‘pure’’ value of agricultural land by state, after subtract-
ing estimates for the value of buildings and land improvements. We multiply coun-
ties’ reported census data by Fogel’s estimated ‘‘pure’’ value of agricultural land (in
their state) divided by the reported census value of agricultural land (in their state),
which reduces the total value of agricultural land in our sample by 39%. This ad-
justment to land value data affects the magnitude of the counterfactual estimates
but does not affect the regression estimates that are conditional on state-by-year
fixed effects.
changes in the national matrix of county-to-county trade costs.

The model contains thousands of counties, each with interacting
goods markets and factor markets, that generate positive and
negative spillovers on other counties. Nevertheless, under a set
of assumptions that are standard among modern trade models,
all direct and indirect impacts of changing trade costs are re-
flected, in equilibrium, in changes to a county’s market access.26
The model implies a simple log-linear relationship between
county agricultural land value and county market access, appro-
priately defined. While the model requires particular assump-
tions to arrive at this parsimonious solution to the challenges
posed by general equilibrium spatial spillovers, the predicted re-
lationship also has an atheoretical appeal in capturing the impact
of railroads. County market access increases when it becomes
cheaper to trade with another county, particularly when that
other county has a larger population. Guided by the model, we
present our main empirical specification that regresses county
agricultural land value on county market access and a set of con-
trol variables.
IV.A. A Model of Trade among U.S. Counties

The economy consists of many trading counties, each in-
dexed by o if the origin of a trade and by d if the destination.
Our baseline model contains just one sector, though the Online
Appendix includes an extended model with an additional sector
(and where the two sectors interact through input-output link-
ages as well as factor and product markets). Agents in the model
consume a continuum of differentiated goods varieties (indexed
by j), and tastes over these varieties take a CES form (with elas-
ticity ).27 Therefore, a consumer living in county o, who receives
26. These modeling assumptions are used extensively in the fields of interna-
tional trade and economic geography, and reflect recent best practice to gain trac-
tion in general equilibrium spatial settings with many regions that trade subject to
trade costs.
27. The elasticity of substitution is not restricted (beyond the discussion in note
9); that is, could be high if varieties are similar. Anderson, de Palma, and Thisse
(1992) provide an attractive microfoundation for aggregate-level CES preferences:
if individual agents desire only one variety of the good (their ‘‘ideal variety’’) and
agents’ utilities from their ideal varieties are distributed in an extreme value (or
‘‘logit’’) fashion, then aggregate consumption data from a population of many such
agents behaves as though all agents have CES preferences over all varieties (where,
in such an interpretation, indexes the inverse of the dispersion of the utility levels
that agents enjoy from their ideal varieties).
income Yo and faces a vector of prices Po, experiences indirect

utility:
Yo
ð1Þ VðPo ; Yo Þ ¼ ;
Po
where Po is the ideal price index (a standard CES price index)
over the continuum of varieties.28
Producers in each county use a Cobb-Douglas technology to
produce varieties from labor, capital, and land. The marginal cost
of producing variety j in county o is:
qo wo r1
o
ð2Þ MCo ð jÞ ¼ ;
zo ð jÞ
where qo is the agricultural land rental rate, wo is the wage
rate, ro is the capital rental rate, and zo( j) is a Hicks-neutral
productivity shifter that is exogenous and local to county o. We
follow Eaton and Kortum (2002) in modeling these productivity
shifters by assuming that each county draws its productivity
level, for any given variety j, from a Fréchet (or Type II
extreme value) distribution with CDF given by: Fo ðzÞ ¼ 1
expðAo z Þ, with > 1.29 This distribution captures how
productivity differences across counties give incentives to spe-
cialize and trade, where these incentives are inversely related
to .30 We assume perfect competition among producers.31
R n 1
28. That is, Po 0 ðpo ðjÞÞ1 dj 1 , where n denotes the (exogenous) measure of
varieties available to consumers and po( j) is the price for which variety j sells in
county o.
29. Following Eaton and Kortum (2002), an intuitive rationale for this partic-
ular functional form for the distribution of productivities is that it reflects the lim-
iting distribution when producers receive technologies from any distribution and
discard all but the best. An additional parameter restriction, > –1, is required for
the integral in Po to be finite. However, Eaton, Kortum, and Sotelo (2012) demon-
strate this restriction is no longer required when there are a finite number of vari-
eties, as in reality. Our continuum of varieties assumption can be thought of as an
analytically convenient approximation to the true, finite number of varieties.
30. More specifically, the parameter Ao captures county-specific (log) mean pro-
ductivity, which corresponds to each county’s level of absolute advantage. The pa-
rameter captures, inversely, the (log) standard deviation of productivity, which
corresponds to the scope for comparative advantage. A low means county produc-
tivity draws are dispersed, creating large incentives to trade on the basis of pro-
ductivity differences.
31. An alternative (and observationally equivalent) formulation, following
Melitz (2003), would assume that firms compete monopolistically with free entry
There are costs to trading varieties across counties. Remote

locations pay high prices for imported varieties and receive low
prices for varieties they produce, because this is the only way that
locations can be competitive in distant markets. We model trade
costs using a simple and standard ‘‘iceberg’’ formulation: a pro-
portional trade cost od is applied to each unit of the variety
shipped.32 When a variety is made in county o and sold locally
in county o, its price is poo( j); but when this same variety is
made in county o and shipped to county d, it will sell for
pod ð jÞ ¼ od poo ð jÞ. Trade is potentially costly, so kod 1.
The physical supply of land is fixed by county geographic
borders, with Lo units available in county o, and we consider im-
pacts on the total value of agricultural land in each county.33
Given that much land is unsettled prior to the railroads, our em-
pirical analysis also estimates a decomposition of the total impact
on agricultural land value per county acre into impacts on the
intensive margin (land value per farm acre) and the extensive
margin (farm acres per county acre). We assume that capital is
perfectly mobile, such that the return to capital is equalized
across counties (i.e., ro = r), although the empirical analysis will
include geographic controls that absorb regional variation in the
interest rate. We further assume that the United States faces a
perfectly elastic supply of capital.34 We assume that workers are
perfectly mobile across counties, at least over a period of many
years. As a result of workers’ endogenous option to work in other
counties, workers’ utility levels are equalized across counties in
equilibrium and hence nominal wages satisfy:
such that all firms’ expected profits are zero and draw their productivity levels z,
following Chaney (2008) and others, from a Pareto distribution Go ðzÞ ¼ 1 ðAzo Þ ,
as typically seen in firm-level data sets (e.g., Axtell 2001).
32. While we measure the absolute cost of trade between counties, we express
this cost in proportional terms using Fogel’s average value of transported agricul-
tural goods.
33. Landowners are not restricted to own land in their county of residence, but
because we do not observe land ownership by county, we assume that land is owned
(and hence the rents earned by landowners are spent) in proportion to county
populations.
34. Specifically, our baseline assumption—which is not needed until we solve
for general equilibrium counterfactuals in Section VII—is that the nominal price of
capital relative to the price index in New York City (i.e., the largest point of entry
and exit for internationally traded goods and a financial center) is fixed. We obtain
very similar results if the nominal price of capital is instead constant relative to a
population-weighted average of all counties’ price indexes.
ð3Þ o;
wo ¼ UP
where U is the level of utility obtained by workers in each
county. As we discuss further in Section IV.C, the level of U
does not affect any of the regressions that we estimate, as any
changes in U are not predicted to be proportionally differential
by county, and are therefore absorbed by the regression con-
stant in our log-linear regressions. However, the endogenous
determination of U is potentially important for our counterfac-
tual exercises and we discuss this further in Sections IV.C
and VII.
IV.B. Solving the Model

1. Prices and Trade Flows. First, we solve for the trade in
goods from each origin county o to each other destination
county d. Due to perfect competition, the marginal cost of produc-
ing each variety is equal to its price. Substituting marginal costs
from each supply location o (equation (2)) into the demand for
varieties in county d, and allowing consumers to buy goods
from their cheapest source of supply in equilibrium, Eaton and
Kortum (2002) derive two important results for our application.
The first is that the consumer price in destination location d is
given by:35
X
ð4Þ ðPd Þ ¼ 1 Ao ðqo wo Þ
od CMAd :
o
We follow Redding and Venables (2004) in referring to this (in-

verse transformation of the) price index as CMAd or ‘‘consumer
market access.’’ Consumer market access in county d repre-
sents its access to cheap products: it is a weighted sum of pro-
ductivity-adjusted costs of production in each origin market o
that could supply market d, with weights declining in the cost
of trading from o to d (i.e., od).
A second important result from Eaton and Kortum (2002)
describes Xod, the value of total exports from o to d, as:
ð5Þ Xod ¼ 1 Ao ðqo wo Þ 1
od CMAd Yd :

1 ð1Þ
35. Here, 1 is a constant defined by 1 ½ ðþ1
Þ r , where ðÞ is the
Z1
function defined by ðtÞ ¼ xt1 ex dx.
0
From equation (5), county o sends more goods to county d if

county o is relatively productive (high Ao) or relatively low cost
(low wo or low qo). County o also sends more goods to county d
if county d has high total income (high Yd) or low overall con-
sumer market access (low CMAd), meaning that county o faces
less competition when selling to market d.
Equation (5) is known as a gravity equation, which governs
trade flows in this model. The gravity equation is appealing be-
cause it dramatically simplifies a complex general equilibrium
problem of spatial competition. In addition, an empirical appeal
of the gravity equation is that it appears to provide a strong fit for
trade-flow data in many contexts (e.g., Anderson and van
Wincoop 2003, 2004; Combes, Mayer, and Thisse 2008; Head
and Mayer 2014).
2. Land Rental Rate. While trade flows between nineteenth-

century U.S. counties are unobserved, the gravity equation
implies tractable and empirically useful expressions for the
land rental rate (qo), a proxy for which is observed (as discussed
in Section III.E). Under the assumption of Cobb-Douglas technol-
ogy, land is paid a fixed share of total output Yo, so qoLo = Yo.
Using equations (3) and (4) and taking logs, equation (5)
implies:36

Ao
ð6Þ ð1 þ Þ ln qo ¼ 2 þ ln ln U þ ln CMAo þ ln FMAo ;
Lo
where FMAo refers to ‘‘firm market access’’ for goods from
origin o and is defined as:
X
ð7Þ FMAo 1
od CMAd Yd :
d
Firm market access (FMAo) is a sum of terms over all destina-

tion counties d to which county o sells its goods. These terms
include the size of the destination market (given by total
income, Yd) and the competitiveness of the destination market
(given by its CMAd term). All terms are inversely weighted by
the cost of trading with each distant market (i.e., by
od ).
36. Here, 2 ln ð1 Þ. Goods markets clear, so all produced goods are bought
X
(Yo ¼ Xod ).
d
Firm market access is conceptually similar to consumer

market access, as both are increasing in cheap access to large
markets with few trade partners. To see this similarity explicitly,
note that it is possible to write CMAd as:37
X
ð8Þ CMAd ¼ 1
od FMAo Yo :
o
Under the additional restriction that trade costs are symmetric

(i.e., od = do for all counties d and o), which is satisfied by the
freight costs data we have constructed in Section III.D, any
solution to equations (7) and (8) must satisfy FMAo = CMAo
for some scalar > 0. That is, FMA and CMA are equal to one
another up to a proportionality whose value does not affect our
analysis. Therefore, we simply refer to market access (MA) to
reflect both concepts of market access. Formally, we let MAo
FMAo ¼ CMAo for all counties o. Using the fact that Yd ¼ wdNd ,
where Nd refers to the (endogenous) number of workers living
in county d, as well as equation (3), equation (7) implies that:38
X ð1þÞ
ð9Þ MAo ¼ 3
od MAd

Nd :
d
In words, a county’s market access can be expressed as the sum

over the cost of trading with each other county, that other
county’s population, and that other county’s access to other
markets.
Given the above simplifications, equation (6) becomes:39

1 Ao 1þ
ð10Þ ln qo ¼ 4 þ ln þ ln ðMAo Þ:
1 þ Lo 1 þ
Equation (10) provides a useful guide for the empirical analysis.
Equilibrium land rental rates (qo) are log-linear in just one
endogenous county-specific economic variable: market access
(MAo). This notion of market access captures firms’ desire to
sell goods elsewhere for a high price and captures consumers’
desire to buy goods from elsewhere at a low price. Immobile
37. This result can be obtained by summing equation (5) over all destinations d
and substituting Ao ðqo wo Þ into equation (4).
1þ

38. Here, 3 U .

1
39. Here, 4 1þ
ð2 ln ln UÞ.
land in county o will be more valuable if county o has cheaper

access to large uncompetitive markets and/or cheaper access to
labor (by offering mobile workers a location in which they can
enjoy cheaper access to goods).
Finally, similar derivations imply that the equilibrium pop-
ulation No in any location o obeys a similar relationship:40

1 2 þ
ln No ¼5 þ ln ðAo Þ ln ðLo Þ
1 þ 1 þ
ð11Þ
1 þ ð1 þ þ Þ
þ ln ðMAo Þ:
ð1 þ Þ
That is, county population also responds log-linearly to differ-
ences in market access, in this setting with free labor mobility.
We estimate this relationship empirically in Section VII.
IV.C. Using the Model to Inform Empirical Work

Equation (10) has three key implications for the empirical
analysis. First, all economic forces that make goods markets
and factor markets interdependent across counties are repre-
sented by market access.41 Thus, both direct and indirect effects
of railroads are captured by analyzing changes in market access.
For example, county A receiving a railroad line would affect other
counties: those that can now trade with county A, those that had
been trading with county A, those that had traded with county A’s
previous trade partners, those that had traded with county A’s
new trade partners, and so on. Even if access to railroads were
randomly assigned to a ‘‘treatment’’ county, ‘‘control’’ counties
would be affected and a regression of land rents on railroad
access would produce biased estimates of railroads’ aggregate
impact. However, a regression of land rents on market access
would be free of this bias in the context of our model, because
all counties’ market access will adjust to changes in the railroad
network. In addition, the aggregate effect of counterfactual
changes to the transportation network (such as the removal of
railroad lines or their replacement with a proposed canal net-
work) can be calculated by substituting the counterfactual
values of od into MAo and then substituting the resulting

40. Here, 5 ln ð1 Þ
ln 1þðþÞ
ln U.
1þ 1þ
which
41. This statement is true holding constant aggregate worker utility (U),
is an assumption to which we return shortly.
counterfactual MAo into equation (10). We perform such calcula-

tions in Section VI.
The second key implication of equation (10) is that a county’s
market access can increase or decrease due to changes in the
railroad network far beyond that county’s borders. Thus, the em-
pirical estimation is not identified only from particular counties
gaining railroad access, which might otherwise be correlated with
land rental rates. This prediction of the model suggests some ro-
bustness checks, control variables, and instrumental variables
approaches that might purge the empirical estimates of endo-
geneity bias arising from local railroad placement decisions, all
of which we pursue later.
Finally, a counterfactual change in the transportation net-
work might affect aggregate worker utility (U). Two extreme sce-
narios are possible, with reality surely in between the two cases.
In one extreme scenario, if there is a perfectly elastic supply of
international migrants, U would be pinned down by workers’ util-
ity levels
P abroad but the aggregate number of workers
N o No would change.42 In the other extreme scenario, if
there is a perfectly inelastic supply of international workers,
the aggregate U.S. population would not change as a result of
the counterfactual transportation costs but U would change.43
As we discuss in Section VII, we can use the model here to
solve for the resulting effects—that is, to solve for the change in
either U or N —in these two extreme scenarios and calculate the
associated impacts on land value. We do so to explore the rele-
vance of these aggregate phenomena, and we gauge the potential
for intermediate cases by estimating the domestic responsiveness
of counties’ population to changes in counties’ market access, as
guided by equation (11).
IV.D. From Theory to an Empirical Specification

While equation (10) provides a useful guide for the empirical
analysis, there are several issues involved with its direct empir-
ical implementation.
42. This scenario assumes that the U.S. labor market is vanishingly small rel-
ative to the world labor market, such that technological changes affecting labor
demand in the United States have no appreciable effect on the level of world worker

utility U.
43. Furthermore, this would affect all counties’ land rents because 3 in equa-

tion (10) depends on U.
First, although the model describes economic impacts in a one-

sector model, we now turn to estimating the impact in the agricul-
tural sector using data on agricultural land values only. Our main
model refers to the price of land generally, but the Online
Appendix derives predictions for the price of agricultural land spe-
cifically. In particular, the Online Appendix outlines a model with
separate agricultural and manufacturing sectors, clarifying how
railroads might affect agriculture through impacts on consump-
tion of manufactured goods, agricultural firms selling inputs to
manufacturing firms and consumers, and agricultural firms
buying inputs from manufacturing firms. In all cases, the value
of agricultural land remains log-linear in a series of different mar-
ket access terms that take a similar functional form to the single
notion of market access in equations (9) and (10). These market
access terms reflect a trade cost–weighted sum over population in
areas producing or consuming particular goods (e.g., urban areas,
rural areas, all areas), such that at least in our setting, empirical
approximations of these terms are extremely highly correlated
with each other. There is little hope of distinguishing their im-
pacts, so we simply note that market access might reflect any
number of these different mechanisms. We later verify the robust-
ness of our estimates to restricting the definition of market access
to include counties’ access to urban areas only (which might be the
particular markets that rural areas value gaining access to).44 We
also present robustness checks that limit the sample to rural areas
(where agricultural land would be minimally affected by local
demand for land by manufacturing or housing).45
Second, a related challenge is that the Census of Agriculture
does not report on the agricultural value of all land in each
county. To measure counties’ total value of land for agriculture,
we use the reported total value of land in farms and assume that
44. Furthermore, for an extreme case in which prices are pinned down by the
cost of reaching international markets and counties only value access to the ‘‘world
economy,’’ we consider measuring counties’ access to only New York City (i.e., the
largest hub for international trade and the most populated U.S. city).
45. In the Online Appendix, we continue to assume that the supply of agricul-
tural land is fixed. As a consequence, impacts of market access on local manufactur-
ing do not directly change the supply of land to the agricultural sector. Although
manufacturing and housing use relatively little land, compared with the agricul-
tural sector, we consider restricting the sample to rural areas to reduce the poten-
tial for changes in manufacturing and housing to directly impact the supply of
agricultural land.
land not in farms has zero agricultural value.46 Unsettled land in

the public domain could have been obtained at very low cost, and
we explore the results’ robustness to assuming that lands settled
between 1870 and 1890 had some unmeasured value even in
1870. Land used for nonagricultural purposes might also have
agricultural value, which motivates robustness checks that re-
strict the sample to include only rural counties.
Third, although we can obtain data on the value of agricul-
tural land, the model relates counties’ market access to the rental
cost of land. Of course, land values are closely related to land
rents and the interest rate.47 Land values reflect both contempo-
raneous rents and discounted future rents, so any correctly an-
ticipated changes in market access would attenuate the
estimated impact of changes in market access.48 The model
refers to the per acre price of land, where the quantity of land
is fixed by counties’ geographic borders, and so we analyze the
total value of land per county acre.49 We then consider how the
estimated total impact decomposes into impacts on the intensive
margin (land value per farm acre) and the extensive margin (farm
acres per county acre).
Fourth, a potential challenge is that we do not directly ob-
serve county productivity (Ao). Our analysis relates changes in
land value to changes in market access, however, which absorbs
any fixed component of county productivity. We then assume that
46. Section III.E discusses modifying the reported census data to obtain a mea-
sure of the value of agricultural land only, which does not include the value of
agricultural buildings and improvements.
47. Formally, it is sufficient for us to assume that Vo = qro , where Vo is the land
value and r is a fixed interest rate. In practice, the empirical results would be un-
affected if the interest rate varies by county, state-year, or with any of the control
variables in the empirical specifications.
48. We suspect that residual changes in market access are difficult to antici-
pate. Because some may have been able to anticipate local railroad construction, we
also report estimates that control directly for changes in local railroad density.
Land values may diverge from land rents during periods of systematic optimism
or pessimism, though we control for regional shocks to land values.
49. In practice, we analyze the total value of land in the county, but this is
numerically equivalent because the number of acres in the county is absorbed by
county fixed effects or by differencing the regression (in logs). We assume that land
not in farms has zero agricultural value, though we later relax that assumption. By
contrast, it would be inappropriate to analyze only the value of land per acre in
farms: this would neglect the central effect from increased economic value of pre-
viously ‘‘infeasible’’ land, and there would be bias from changes in the composition
of farmland.
changes in county productivity are orthogonal to changes in

market access from 1870 to 1890, after controlling for counties’
geographic location (state, longitude, latitude).50 Additional ro-
bustness checks include controls for region-specific or subregion-
specific changes in productivity.
Fifth, the calculation of market access (via equation (9)) re-
quires the measurement of all trade costs ( od). We approximate
these trade costs using the calculated county-to-county lowest-
cost freight transportation routes (described in Section III.D), ex-
pressed in proportional terms based on the average value of
transported agricultural goods. We treat each county as a point
with common prices and wages throughout, though the calcu-
lated centroid-to-network distances were adjusted to reflect aver-
age distances from many points in each county. The baseline
results use trade costs calculated using freight rates drawn
from Fogel (1964), although we explore the sensitivity of our re-
sults to the particular freight rates that enter od in MAo.
Sixth, the market access term (MAo) is not directly observed
because some destination characteristics are unobserved.51
Based on equation (9), however, it is possible to use data on
each county’s population (No) to express each county’s market
access MAo as an implicit function of the market access of all
other counties. We can solve this implicit function numerically
and report empirical estimates that use counties’ derived market
access in 1870 and 1890.52 This approach accords exactly with
equation (9), but the calculation of these terms depends on run-
ning the data through the particular structure of the model. A
simpler approach, which is also less model-dependent, uses the
following expression that provides a first-order approximation to
counties’ market access:
50. Because the productivity term (Ao) enters log-linearly in equation (10), we
control for this term using county fixed effects, state-by-year fixed effects, and year-
interacted cubic polynomials in the latitude and longitude of the country centroid.
We include cubic polynomials in counties’ longitude and latitude to control flexibly
for geographic differences, though we also explore robustness to lower-order and
higher-order polynomials.
51. From equation (4), the wage wo and the technology term Ao are unobserved.
52. With C counties, equation (9) becomes a system of C equations in C un-
knowns. Following the results cited in Allen and Arkolakis (2014), this system
has a unique solution up to a scalar multiple that affects all counties’ MAo values
equally.
X
ð12Þ MAo &
od Nd :
d
The results are not sensitive to our use of the MA approxima-

tion in equation (12), as we document later, because (the log of)
this approximated term is highly correlated with (the log of) the
MA term derived from solving equation (9). We also explore
robustness to proxying for market demand using the census-
reported value of real and personal property, rather than
using population Nd as in equation (12).
Seventh, the population Nd in each county d is endogenously
co-determined with the land rental rate qo in county o, which
would generate endogeneity bias in a regression based on equa-
tion (10). A particular instance of this concern arises because No
is included in the definition of MAo in equation (12). For this
reason, we exclude each county’s own population from its mea-
sure of market access,53 though our results are insensitive to this
decision because the contribution of No to MAo is small for most
counties. More generally, a county’s land value may be affected by
local shocks that affect nearby counties’ population. In robustness
checks, we calculate each county’s market access when omitting
other counties within particular distance buffers around that
county. In further robustness checks, we calculate each county’s
market access in 1870 and 1890 when holding all counties’ pop-
ulation fixed at 1870 levels.
Eighth, and finally, the expression for market access in equa-
tion (12) requires an estimate of (a parameter known as the
‘‘trade elasticity’’).54 Different values of will have a mechanical
influence on the estimated impact of market access, by changing
the definition of market access, but it is more relevant to consider
whether the estimated counterfactual impacts are sensitive to the
choice of . While depends on the empirical context, values es-
timated and used in the literature have typically straddled the
two extreme estimates in Eaton and Kortum (2002) of 3.60 and
12.86 (though Eaton and Kortum’s 2002 preferred estimate is
53. Throughout the empirical analysis, we work with the variable

P
MAo d6¼o od Nd .
54. As per equation (5), trade costs affect trade flows with this elasticity (in
partial equilibrium, holding fixed exporter factor prices, importer income, and
the importer’s total price index).
8.28).55 In Section VI.B and the Online Appendix, we verify the

robustness of our results to choosing alternative values for
within (and even outside of) this range. However, we focus on
estimates when setting equal to 8.22, which is the value we
obtain by drawing on the model’s structure to estimate the
value of that best fits the data in our empirical setting. We
obtain this estimate from a nonlinear least squares (NLS) rou-
tine, noting that equation (10) is nonlinear in .56 The estimated
value of 8.22 has a 95% confidence interval between 3.73 and
26.83 (based on block-bootstrapping at the state-level, with 400
replications).57
Our main empirical approximation of market access recalls
an older concept of ‘‘market potential,’’ based on the number and
size of markets available at low trade costsP(Harris 1954). Harris’s
market potential term effectively equals d6¼o ð od Þ1 Nd , though
Harris used distance as a proxy for trade costs. Our focus on trade
costs, rather than distance, allows us to consider how changes in
the national railroad network affect each county even though
geographic distances remain fixed. The remaining practical dif-
ference for our initial empirical estimation is that we allow trade
costs to affect the importance of distant market sizes with a power
55. In some other examples, Caliendo and Parro (forthcoming) estimate an av-
erage (across 20 industries) of 8.64 (with = 8.11 for agriculture); Costinot,
Donaldson, and Komunjer (2012) estimate = 6.53; Donaldson (2015) estimates
an average of 3.80 (across 13 agricultural categories); and Simonovska and Waugh
(2013) estimate = 4.10. In the Head and Mayer (2014) meta-survey of estimates in
the literature, based on those authors’ preferred estimation strategy, the mean
value of is 6.74 and the median value is 5.03.
56. In particular, writing equation (10) at time t we have ln qot ¼ f ðÞot þ eot ,

1þ
where f ðÞot 1þ ln MAðÞot ; MA()ot is defined implicitly as the solution to equa-
tion (9) at time t and for given , as well as given data on county-to-county trans-

1
portation costs odt and county populations Not in year t; and eot 1þ ln ALotot .
This is an NLS problem because f()ot is nonlinear in the parameter . As with our
main estimation strategy, described in Section IV.E, we assume that eot is orthog-
onal to f()ot conditional on county fixed effects, state-by-year fixed effects, and cubic
polynomials in latitude and longitude interacted with year fixed effects. In practical
terms, we execute this NLS problem using a grid search over based on an evenly
spaced grid with 1,000 points. This procedure requires a value for the land and labor
shares in farm production, and , respectively, to compute f()ot; following Caselli
and Coleman (2001), we use = 0.19 and = 0.60.
57. Note that the bootstrapped confidence interval is highly skewed to the right,
such that the 95% confidence interval extends to higher values not typically con-
sidered in the empirical literature.
of – rather than –1. Typical estimates of are substantially

greater than one, including our own estimate of = 8.22, but we
also report results from assuming a value of equal to 1.
IV.E. Main Empirical Specification
Summarizing the foregoing discussion, we begin by regress-
ing the log value of agricultural land in county o and year t on log
market access (MAot), a county fixed effect ( o), state-by-year fixed
effects ( st), and a cubic polynomial in county latitude and longi-
tude interacted with year effects ( f ðxo ; yo Þ t ):
ð13Þ ln Vot ¼
ln ðMAot Þ þ o þ st þ f ðxo ; yo Þ t þ eot :
In practice, and equivalently in the case of two time periods, we
estimate equation (13) in differences and often find it conve-
nient to discuss relating changes in log land value to changes
in log market access.58 The regressions are weighted by coun-
ties’ land value in 1870, both to minimize the influence of out-
liers and to estimate the appropriate average effect for the
counterfactual analysis.59 Standard errors are clustered at the
state level to adjust for heteroskedasticity and within-state cor-
relation over time.60
The regression sample is a balanced panel of 2,327 counties
with land value data in 1870 and 1890.61 Figure III shows the
sample counties, which are shaded to reflect their change in
58. Analogously, the baseline specification (in differences) controls for state
fixed effects and flexible polynomials in a county’s latitude and longitude.
59. We use the estimated
to calculate the percent decline in each county’s land
value associated with the counterfactual decline in each county’s market access and
multiply this percent decline in land value by each county’s land value in 1890. The
aggregate counterfactual loss gives greater weight to counties with greater land
value so, if the impact of market access varies across sample counties, it is natural to
estimate
weighting by county land value.
60. The estimated standard errors are similar when allowing for spatial corre-
lation among sample counties (Conley 1999), assuming that spatial correlation
declines linearly up to a distance of 700 miles and is zero thereafter. Compared to
unweighted standard errors clustered by state, the spatial standard error on the
baseline estimate is similar with distance cutoffs of 600–800 miles, lower by 10–25%
for distance cutoffs between 500 and 200 miles, and higher by 7–9% for distance
cutoffs between 900 and 1,000 miles.
61. Our measure of county market access includes the cost of trading with each
other county that has population data, even if that county is not in the regression
sample.
834
FIGURE III
Calculated Changes in Log Market Access from 1870 to 1890, by County
This map shows the 2,327 sample counties, shaded according to their calculated change in market access from 1870 to 1890.
Counties are divided into seven groups (with an equal number of counties per group), and darker shades denote larger increases in
market access. The seven groupings correspond to log changes of: greater than 1.60 (darkest), 1.60 to 1.06, 1.06 to 0.83, 0.83 to 0.73,
0.73 to 0.66, 0.66 to 0.61, and smaller than 0.61 (lightest). nonsample regions are shown hatched.
market access from 1870 to 1890.62 Darker shades correspond to

larger increases in market access. There is substantial variation
within geographic regions, though Figure III is unable to illus-
trate the full degree of within-region variation due to the coarse-
ness of the shaded bins. Subsequent robustness checks further
exploit this detailed variation within geographic areas, through
the inclusion of additional control variables.
V. Estimated Impact of Market Access on Agricultural

Land Value
V.A. Baseline Estimate
Table I reports our baseline result from estimating equation
(13). Market access is estimated to have a large and statistically
significant impact on land values: a 1% increase in market access
increases land values by approximately 0.51% (column (1)). The
total impact on land value decomposes into roughly equal impacts
on the intensive margin (value per farm acre) and the extensive
margin (farm acres per county acre).63
Column (2) reports a similar elasticity for our model-derived
measure of market access, discussed already, which reflects a
close correlation between log changes in the two measures of
market access. We now focus on using the approximated measure
of market access, given that its definition is more transparent and
simpler to compute under many alternative assumptions, and we
consider again the model-derived measure when we present
model-derived counterfactual estimates in Section VII.
In our baseline specification, county market access increases
due to expansion of the railroad network and growth in other
counties’ population. To better understand the main identifying
variation in market access, we calculate counties’ market access
in 1870 and 1890 when holding all counties’ population fixed at
1870 levels. The estimated impact of market access remains very
similar (column (3)), as relative changes in market access are
primarily determined by the changing transportation network,
62. Counties are separated into seven equal-sized groups.

63. In particular, estimating equation (13) produces an estimated impact of
0.245% on the log value of agricultural land per acre of farmland, and an estimated
impact of 0.266% on log acres of farmland per county acre.
TABLE I
ESTIMATED IMPACT OF MARKET ACCESS ON AGRICULTURAL LAND VALUE
Log Value of Agricultural Land
(1) (2) (3) (4) (5)
Model- 100-Mile
Derived Fixed Buffer
Baseline Market 1870 Market
Specification Access Population Access Unweighted
Log market access 0.511 0.587 0.510 0.487 0.506
(0.065) (0.073) (0.065) (0.064) (0.124)
Number of counties 2,327 2,327 2,327 2,327 2,327
R-squared 0.625 0.627 0.625 0.621 0.606
Notes. Column (1) reports estimates from equation (13) in the text: for a balanced panel of 2,327
counties in 1870 and 1890, the log value of agricultural land is regressed on log market access (as defined
in equation (12)), county fixed effects, state-by-year fixed effects, and year-specific cubic polynomials in
county latitude and longitude. The regression is weighted by counties’ 1870 value of agricultural land.
Columns (2) through (5) report robustness checks, as discussed in the text: column (2) uses a model-
derived measure of market access (equation (9) in the text); column (3) uses a measure of market
access for 1890 that holds counties’ population levels fixed at 1870 levels; column (4) uses a measure of
market access only to counties beyond 100 miles of a county; and column (5) reports estimates from the
baseline specification when not weighting by counties’ 1870 land value. Robust standard errors clustered
by state are reported in parentheses.
rather than by differential population growth among counties’

trade partners.
In a related exercise, we calculate county o’s market access
based only on those counties d that are located beyond some dis-
tance buffer from county o.64 For a distance buffer of 100 miles,
column (4) reports a similar impact of market access on land
values. A county’s market access mainly reflects trade with
more distant counties, which reduces the potential for bias from
local shocks increasing both land values and access to local
markets.
Column (5) reports an unweighted estimate, which is of the
same magnitude but lower statistical precision than the baseline
estimate. Our preferred estimates weight by 1870 land value to
reduce the influence of outliers (e.g., counties with very low land-
value in 1870 that experience large percent increases in land
value from 1870 to 1890). Furthermore, weighting by 1870
land value removes the arbitrary distinction between omitting
64. We measure which counties’ borders fall within a distance buffer of each
county, and calculate that county’s market access when setting nearby counties’
market size to zero.
counties with missing (or zero) land value in 1870 and including
counties with nearly zero land value in 1870.
V.B. Endogeneity of Railroad Construction
Perhaps the main empirical concern is that expansion of the
railroad network is endogenous, which may create spurious cor-
relation between increases in county market access and agricul-
tural land value. In particular, railroad construction may occur in
counties that would otherwise have experienced relative in-
creases in agricultural land values.65 Some variation in local rail-
road construction may be exogenous, perhaps affected by politics,
terrain, or incentives to connect particular large cities, but it is
difficult to isolate this variation amid the high-density railroad
network in the historical United States.
A useful feature of our definition of market access is that
much variation in a county’s market access is not determined
solely by that county’s own railroad track or even nearby railroad
track. Thus, we can examine changes in counties’ market access
that are orthogonal to changes in counties’ own railroads or
nearby railroads. We report these estimates in Table II, where
column (1) reports the baseline result as a basis for comparison.
Column (2) of Table II reports estimates from a modified ver-
sion of equation (13), which now controls for whether a county has
any railroad track. Column (3) also controls for a flexible function
of the county’s mileage of railroad track.66 Column (4) adds con-
trols for railroad track within a 10-mile buffer of the county, in-
cluding whether there is any track and the mileage of track.
Column (5) also adds the same controls for railroad track
within distance buffers of 20 miles, 30 miles, and 40 miles. The
estimated impact of market access declines across these specifi-
cations, as local railroad construction increases county market
access and including these control variables may, in part, exac-
erbate attenuation bias from measurement error in market
access. The estimated impact of market access remains substan-
tial and statistically significant, however, when exploiting
65. In practice, this concern may remain after controlling for changes by state
and counties’ longitude and latitude.
66. For this specification, and the following specifications, we control flexibly for
railroad track mileage by including a cubic polynomial function of railroad track
mileage.
TABLE II
IMPACT OF MARKET ACCESS: ROBUSTNESS TO CONTROLS FOR LOCAL RAILROADS
Log Value of Agricultural Land
(1) (2) (3) (4) (5)
Log market access 0.511 0.434 0.431 0.343 0.276
(0.065) (0.064) (0.082) (0.080) (0.075)
Controls for:
Any railroad No Yes Yes Yes Yes
Railroad length No No Yes Yes Yes
Railroads within nearby buffer No No No Yes Yes
Railroads within further buffers No No No No Yes
Number of counties 2,327 2,327 2,327 2,327 2,327
R-squared 0.625 0.627 0.632 0.640 0.653
Notes. Column (1) reports the estimated impact of market access from the baseline specification
(Table I, column 1). Column (2) includes an additional control for whether a county contains any railroad
track. Column (3) also controls for a cubic polynomial function of the railroad track mileage in a county.
Column (4) includes additional controls for whether a county contains any railroad track within 10 miles
of the county boundary, and a cubic polynomial function of the railroad track mileage within 10 miles of
the county boundary. Column (5) includes additional controls for any railroad track and mileage of rail-
road track within 20 miles, 30 miles, and 40 miles of the county (as in column (4)). All regressions include
county fixed effects, state-by-year fixed effects, and year-specific cubic polynomials in county latitude and
longitude. All regressions are weighted by counties’ 1870 value of agricultural land. Robust standard
errors clustered by state are reported in parentheses.
variation in market access that is independent of local railroad

construction.
In another empirical exercise, we exploit the inherent sub-
stitutability between railroads and waterways. Counties close to
navigable waterways are naturally less dependent on the railroad
network to obtain access to markets. Thus, setting aside how the
railroad network actually changed from 1870 to 1890, we might
expect market access to increase by less in counties with better
access to waterways. To proxy for counties’ access to markets
through natural waterways (i.e., county ‘‘water market access’’),
we calculate counties’ market access in 1870 based on county-to-
county trade costs in the absence of railroads.
Table III, column (1), reports that counties with greater
‘‘water market access’’ in 1870 experienced less of an increase
in market access from 1870 to 1890. Furthermore, counties
with greater ‘‘water market access’’ in 1870 experienced a relative
decline in agricultural land values (column (2)). If we assume that
counties with greater ‘‘water market access’’ would have changed
similarly to counties with lower ‘‘water market access,’’ aside
from their differential changes in market access, then we
can instrument for the change in market access with counties’
TABLE III
IMPACT OF MARKET ACCESS: INSTRUMENTING WITH WATERWAYS
Change in Log Change in Log Value of

Market Access Agricultural Land (1870 to 1890)
(1870 to 1890)
(1) (2) (3) (4)
OLS OLS 2SLS OLS
Change in log 1.142 0.511
market access
(0.290) (0.065)
Log water market 0.096 0.109
access in 1870
(0.030) (0.024)
Number of counties 2,327 2,327 2,327 2,327
R-squared 0.568 0.602 0.571 0.625
Notes. Columns (1) and (2) report the impact of log water market access in 1870 on changes in the
indicated outcome variable between 1870 and 1890. Column (3) reports the estimated impact of a change
in log market access on the change in log value of agricultural land, instrumenting for the change in log
market access with log water market access in 1870. Column (4) reports the baseline estimate for com-
parison (from column (1) of Table I). All regressions include state fixed effects and cubic polynomials in
county latitude and longitude, and are weighted by counties’ 1870 value of agricultural land. Robust
standard errors clustered by state are reported in parentheses.
initial ‘‘water market access.’’ Column (3) reports the implied in-
strumental variables estimate, which corresponds to the ratio of
the coefficient in column (2) to the coefficient in column (1). The
implied impact of market access on agricultural land value is
larger, but much less precise, than the baseline estimate
(column (4)).
Although we find this instrumental variables (IV) approach
reasonable ex ante, the substantially larger magnitude may well
reflect a violation of the IV identification assumptions. For exam-
ple, counties further from natural waterways may have experi-
enced greater relative increases in agricultural land value for a
variety of other reasons. The IV estimate certainly does not reject
a substantial impact of market access on agricultural land value,
but we emphasize our empirical approaches that focus instead on
directly controlling for local shocks to agricultural land value (in-
cluding additional robustness checks summarized below).
VI. Economic Impact of Removing Railroads in 1890

Drawing on the estimated impact of market access, we now
turn to estimating the economic impact of removing all railroads
in 1890 and the robustness of both estimates to various choices in

the empirical analysis.
VI.A. Baseline Estimate

Using our transportation network database, we calculate
county-to-county lowest-cost freight routes in the absence of
any railroads. Given these counterfactual trade costs and the
population of each county, we calculate counties’ counterfactual
market access. Online Appendix Figure 4 maps counties’ change
in market access from 1890 to our baseline counterfactual sce-
nario without railroads, with darker shades corresponding to
greater declines in market access. We begin by assuming that
counties’ populations are held fixed at 1890 levels, but relax
this assumption later.
Counties’ market access in 1890 declines by 80%, on average,
when all railroads are eliminated. The standard deviation of this
decline is 15%, while the 5th and 95th percentiles are 55% and
99.6% declines. Projecting the impact of large counterfactual
changes in market access is more credible when two conditions
hold: (i) the original regressions are estimated using large
changes in market access, and (ii) the impact of market access
is (log-)linear.
In support of the first condition, the measured changes in
market access between 1870 and 1890 have a similar range as
that in our counterfactual scenarios. The average percent decline
in market access from 1890 to 1870 is 60%, with a standard de-
viation of 16%, a 5th percentile decline of 43%, and a 95th per-
centile decline of 94.7%. Log changes in market access from 1870
to 1890 remain large when controlling for state fixed effects and
counties’ longitude and latitude: the residual standard deviation
is 0.20 logs (weighted) and 0.54 logs (unweighted), whereas the
unconditional standard deviation is 0.75 logs (weighted) and 0.89
logs (unweighted).
In support of the second condition, the estimated impact of
market access on land value does appear to be (log-)linear. We
calculate residual changes in log land value and log market
access, after conditioning on the control variables in equation
(13). Limiting the sample to residual changes in market access
within 1 standard deviation (plus or minus), Figure IV shows a
FIGURE IV
Local Polynomial Relationship between Changes in Log Land Value and Log
Market Access, 1870 to 1890
Residual changes in sample counties are calculated by regressing changes
in the indicated variable on state fixed effects and county longitude and lati-
tude, as in equation (13). This figure then plots the local polynomial relation-
ship between residual changes in log land value and residual changes in log
market access, based on an Epanechnikov kernel function with default band-
width of 0.06. The shaded region reflects the 95% confidence interval.
kernel-weighted local polynomial and its 95% confidence inter-

val.67 There does appear to be a roughly linear functional rela-
tionship between changes in log land value and changes in log
market access. The theoretical model also predicts that this re-
lationship is log-linear, which gives some additional confidence
in predicting counterfactual impacts based on this functional
form.
Removing all railroads in 1890 is predicted to decrease the
total value of U.S. agricultural land by 60.2% (with a standard
error of 4.2%), based on the calculated decline in market access
and the estimated impact of market access on agricultural land
67. The local polynomial represents the (default) Epanechnikov kernel with
(default) bandwidth 0.06.
value.68 In 1890 dollars, this loss corresponds to $4.9 billion. Using

Fogel’s preferred mortgage rate of interest, the implied annual eco-
nomic loss (and standard error) is $386 million ($27 million) or
3.22% (0.22%) of GNP in 1890. The largest possible annual economic
impact of railroads is only 5.35% of GNP, which would reflect the
complete loss of all agricultural land value in the sample region.69
Decreases in agricultural land value are largest in the
Midwest but are substantial in all regions of the United States.
The decline in agricultural land value by region is $2.5 billion in
the Midwest, $0.9 billion in the Plains, and $0.5 billion in the
Northeast, South, and Far West. When allowing the impact of
market access to vary by region, the impact of railroads declines
somewhat in the Northeast and Far West, where we expect con-
gestion and market power to create greater measurement error in
counties’ market access.70
VI.B. Summary of Robustness Checks

We summarize various robustness checks, which the Online
Appendix discusses in detail.
For our main measure of counties’ market access, we calcu-
late counties’ access to population in all other counties. We con-
sider several modifications to this use of population, including
inflating the population in counties with major ports to reflect
access to international exports and imports, inflating counties’
population by decade and region to adjust for estimates of census
undercounting, and replacing counties’ population with counties’
wealth as an alternative proxy for counties’ market size.
68. County agricultural land value falls by 0.511 logs for every 1 log decline in
market access (Table I, column (1)), and the implied percent decline in each county’s
land value is multiplied by each county’s land value in 1890. We include all counties
from 1890 in these counterfactual estimates, though 455 counties are omitted from
the regression sample due to missing data in 1870 (e.g., the counties did not exist in
1870). Losses in these nonsample counties make up 8% of the total counterfactual
loss. In the absence of railroads, these nonsample counties experience larger aver-
age declines in market access than the regression sample counties (92% versus
78%), but their average land value is lower ($1.0 million versus $3.3 million).
69. Fogel also reports state-level mortgage interest rates: using these rates, the
implied annual economic loss is 3.01% of GNP and the largest possible loss is 4.92%
of GNP.
70. When allowing the impact of market access to vary by region, the estimated
impacts of market access (and standard error) are 0.587 (0.245) in the Plains, 0.519
(0.076) in the Midwest, 0.546 (0.125) in the South, 0.476 (0.153) in the Far West, and
0.306 (0.063) in the Northeast.
We also consider restrictions on which other locations provide

counties with valued trading partners. For example, because agri-
cultural counties might only benefit from trade with urban loca-
tions, we define counties’ market access over only urban areas, only
major cities, or only New York City. The latter specification in
particular approximates a model in which counties only value de-
creased transportation costs to world markets with fixed prices
(pinned down in New York City). We also consider defining
market access using alternative values of (the ‘‘trade elasticity’’),
which governs how much counties’ market access depends on more
distant locations. Furthermore, we report the results’ robustness to
choosing alternative transportation cost parameters, such as lower
waterway costs, higher railroad costs, or lower wagon costs.
We also consider modifications to our main empirical specifica-
tion, such as including additional controls for regional and subre-
gional changes in agricultural land value. Because some frontier
regions might experience extreme changes, we also consider exclud-
ing outlier values for changes in market access and land value. Much
of the increase in counties’ agricultural land value was associated
with increased settlement of farmland, so we also consider whether
previously unsettled land had some unobserved positive value and
how much increased land values might reflect greater fixed invest-
ments in improving farmland. Finally, we consider whether impacts
on agricultural land values might be driven by impacts of market
access on local nonagricultural sectors, restricting the analysis to
rural areas with less urban land use or manufacturing.
Overall, the empirical results are similar across these alter-
native modeling assumptions. The Online Appendix reports the
robustness of both the estimated impact of market access and the
estimated percent decline in land value without railroads, al-
though the latter estimate is the most relevant notion of robust-
ness when changes in the definition of market access have a
mechanical effect on its estimated impact.
VII. Counterfactual Impacts on Population and

Worker Utility
The previous counterfactual estimates reflect the predicted
change in agricultural land value in the absence of railroads, but
under the assumption that removal of the railroads would not cause
reallocation of population across the United States (or between the
United States and the rest of the world). This section explores how
the counterfactual estimates change when allowing for this reallo-
cation of population. Furthermore, we consider the associated im-
pacts on worker utility from declines in the agricultural sector.
We begin by using simple proxies for the potential distribu-
tion of population within the United States in a counterfactual
world without railroads: the distribution of population actually
observed in earlier decades (1870, 1850, and 1830). In particular,
when calculating each county’s counterfactual market access in
the no-railroad scenario, we assign each county a population
share that is equal to its share of the national population in the
earlier decade (1870, 1850, or 1830) but where total national pop-
ulation is held constant at its 1890 level.71
Table IV reports the counterfactual impacts on land value
under these alternative scenarios, removing railroads and allow-
ing for changes in the distribution of population. Rows 1, 2, and 3
report the results from reallocating population to reflect popula-
tion shares from 1870, 1850, and 1830, respectively. These three
alternative estimates are similar to each other, with counterfac-
tual losses in agricultural land value between 59.1% and 60.1%.
These estimates are also similar to our baseline estimate of
60.2%, reported at the top of Table IV, which suggests that the
estimated impacts on agricultural land value are insensitive to
the domestic reallocation of population shares.
However, the counterfactual distribution of population—
after allowing workers to relocate optimally in a no-railroads sce-
nario—may differ in important ways from earlier historical dis-
tributions of population. To explore this phenomenon, we draw
further on the model. The model’s structure is sufficient to simu-
late the distribution of population in 1890 in the absence of rail-
roads, but holding all else constant.72 We begin by assuming that
71. This procedure uses population shares observed when the railroad network
was substantially less developed (in 1870 and 1850) or nonexistent (in 1830).
Notably, many counties receive zero population when there were no overlaying
counties in these earlier periods.
72. In particular, we assume that each county’s productivity (Ao) is held con-
stant at its 1890 level and solve for the new equilibrium distribution of population
when trade costs change in the no-railroads counterfactual. As described in note 9,
we develop a procedure that allows us to back out the productivity parameters (Ao)
for each county in 1890 by using data on the population share in each county in 1890
and trade costs in 1890. This procedure draws on our estimate of = 8.22 and the
assumed parameter values = 0.19 and = 0.60.
TABLE IV
COUNTERFACTUAL IMPACTS ON LAND VALUE, ALLOWING FOR POPULATION REALLOCATION
Percent Decline
in Land Value
without Railroads
Baseline counterfactual without railroads in 1890 60.2 (4.2)
Changes in the distribution of population
(holding total population constant)
1. Assuming the population distribution from 1870 59.1 (4.1)
4. Assigning the model-predicted counterfactual 56.6 (4.0)
distribution of population
Changes in the distribution and total level of population
(holding worker utility constant)
5. Model-predicted estimate, allowing for changes in the 58.4
level and distribution of population
Changes in the distribution of population and
worker utility (holding total population constant)
6. Model-predicted estimate, allowing for changes in 19.0
worker utility and the distribution of population
Notes. Each row reports the counterfactual impact on land value from the removal of railroads, given
some response in county populations (as described in Section VII). In row 1, the railroad network is
removed and county population shares are shifted to their population share in 1870 (holding fixed the
total population in the country). Similarly, in rows 2 and 3, the railroad network is removed and county
population shares are shifted to their population shares in 1850 and 1830, respectively. In row 4, the
railroad network is removed and county population shares are shifted to those predicted by the model for
the counterfactual scenario. In rows 1–4, the counterfactual calculations follow the same procedure as in
the baseline counterfactual analysis (reported at the top of the table for comparison). In row 5, we report
the impact on land value implied by the model parameters for counterfactual transportation costs without
railroads, holding worker utility constant and allowing total population to decline along with the realloca-
tion of population within the country. In row 6, we report the impact on land value implied by the model
parameters for counterfactual transportation costs without railroads, holding total population constant
and allowing worker utility to decline along with the reallocation of population within the country. Robust
standard errors clustered by state are reported in parentheses, when available.
the totalPU.S. population level is held constant, which we denote

by N ( o No ). We then use the new county populations to calcu-
late each county’s market access in the no-railroad counterfactual,
following equation (12), as before. Table IV, row 4, reports an esti-
mated counterfactual decline in land value of 56.6%, which suggests
that the endogenous reallocation of population in response to the
removal of railroads has only a small effect on the loss in land value
attributable to the removal of railroads.
The calculations provide a predicted counterfactual popula-
tion for each county in the no-railroad scenario, which is itself of
interest. Figure V, Panel A, maps the substantial counterfactual
changes in population, in which darker shades correspond to
846
FIGURE V
Changes in Log Population, by County
Panel A shows the 2,782 counterfactual sample counties, shaded according to their change in log population from 1890 to the
counterfactual scenario. Counties are divided into seven equal-sized groups: darker shades denote larger declines in population, and
lighter shades denote larger increases in population. The seven groupings correspond to log changes of: less than 1.31 (darkest), 1.31 to
RAILROADS AND AMERICAN ECONOMIC GROWTH
FIGURE V
Continued
847
Panel B shows the 2,327 sample counties, shaded according to their change in log population from 1870 to 1890. Counties are divided
into seven equal-sized groups: darker shades denote larger increases in population, and lighter shades smaller increases. The seven
groupings correspond to log changes of: greater than 1.46 (darkest), 1.46 to 0.81, 0.81 to 0.53, 0.53 to 0.37, 0.37 to 0.24, 0.24 to 0.11, and
less than 0.11 (lightest). Nonsample regions are shown hatched.
greater declines in population. In the absence of railroads, there

is a clear shift of population from interior regions further from
navigable waterways toward interior regions of the country close
to navigable waterways. We suspect that the land value results
are not sensitive to this counterfactual reallocation of population
because the major cities continue to be major cities, and counties’
market access is dependent heavily on their access to these major
cities. As a comparison, Panel B maps the actual change in pop-
ulation from 1870 to 1890, when there was a more general move-
ment of population toward more Western regions due to railroad
network expansion and myriad other factors.
Up to this point, our estimates have held fixed the total pop-
ulation N in the United States at its 1890 level even as railroads
are removed. As discussed in Section IV.C, however, we have also
assumed that workers’ utility level (U) has been held fixed as
well. These assumptions are inconsistent with each other, as U
could only remain constant in the counterfactual if workers left
the United States (i.e., if N were to fall). Conversely, if workers
did not leave the United States, so that N were to remain con-
stant, then U would decline. Drawing on the full general equilib-
rium structure of the model, we now consider these two extreme
and opposite scenarios: (i) holding U fixed and allowing N to de-
cline, and (ii) holding N fixed and allowing U to decline.
In the first extreme scenario, we continue to hold worker
utility U fixed and allow for international migration such that
the total population of the United States N falls in the no-railroad
scenario. The model parameters imply that land value would fall
by 58.4% (row 5).73 The rigid structure of the model, in particular
the assumption regarding Cobb-Douglas production, coupled
with our choice of numeraire, implies that total population
would also fall by the same proportion (58.4%). Although this is
surely a large adjustment of U.S. population, recall that our
73. These magnitudes now reflect our model-derived measure of market access,
rather than our empirical approximation of market access. There is a conceptual
issue in considering these counterfactual changes in land value from changes in the
model-derived measure of market access, which concerns what a ‘‘dollar’’ means in
the counterfactual. The absolute level of any county’s market access is, like the price
level in any general equilibrium economy, indeterminate without the choice of a
numeraire good. The estimates reported here take the population-weighted aver-
age of all counties’ good price indices as the numeraire, as might approximate a
conventional consumer price index. We obtain similar results when using other
plausible choices as the numeraire, such as the price index in New York City.
model contains only one sector for tractability. In a multisector

U.S. economy, containing agricultural and manufacturing sectors
with tradable goods (and service sectors with nontradable goods),
part of this aggregate population adjustment could occur across
sectors within the United States.
In the second extreme scenario, we allow worker utility to
decline and restrict international migration such that the total
U.S. population is held fixed. The model parameters imply that
land value declines by 19%, as reported in row 6, which is sub-
stantially smaller than the previous land value estimates because
much of the economic incidence has been shifted onto labor rather
than land.74 Worker utility also declines by 19%, such that the
aggregate economic impact becomes an even larger share of the
total economy.75
These two scenarios imply differing incidence of the economic
loss from the removal of railroads. Although the exact change in
the aggregate variables (U and N ) is necessarily hard to pin down
empirically, the simple general equilibrium model proposed here
suggests that there were large economic impacts from the rail-
roads in the agricultural sector that go beyond the impact on ag-
ricultural land value. While the complete loss of the agricultural
sector could only generate annual direct losses equal to 5.35% of
GNP (i.e., multiplying the value of all agricultural land by Fogel’s
preferred mortgage interest rate), the results here highlight that
the loss of agricultural production can also affect total population
and/or worker utility. In addition, because product and labor
markets in the United States interacted with those in other coun-
tries via trade and migration, railroads would have affected
prices, wages, and worker utility in the rest of the world.
Against this backdrop, a natural question is which of the two
extreme scenarios might be closer to the truth. To provide guid-
ance on this we now turn to estimating the mobility of population
within the United States in this time period in response to
changes in counties’ market access. Table V reports estimates
analogous to our previous empirical estimates from Table I, but
with log population as the outcome variable; this log-linear spe-
cification is motivated by our model in equation (11). Our baseline
74. In the previous case, with a perfectly elastic supply of labor (i.e., row 5), land
is the only fixed factor and bears the entire cost from removal of railroads.
75. The Cobb-Douglas production function and numeraire choice imply that
worker utility falls by the same percentage as land value.
TABLE V
ESTIMATED IMPACT OF MARKET ACCESS ON POPULATION
Log Population
(1) (2) (3) (4) (5) (6)
100-Mile
Calibrated Buffer Weighted
Baseline Market Fixed 1870 Market by 1870
Specification Access Population Access Unweighted Population
Log market 0.259 0.314 0.262 0.243 0.348 0.197
access
(0.049) (0.056) (0.050) (0.048) (0.086) (0.039)
Number of 2,327 2,327 2,327 2,327 2,327 2,327
counties
R-squared 0.310 0.316 0.311 0.307 0.523 0.252
Notes. Columns (1) through (5) report estimates from empirical specifications analogous to those
reported in columns (1) through (5) of Table I, but for the outcome variable log population. In column
(6), the regression from column 1 is weighted by counties’ population in 1870 (rather than counties’ land
value in 1870). Robust standard errors clustered by state are reported in parentheses.
estimate implies that county population increases by 0.26% from

a 1% increase in market access. This reflects a substantial popu-
lation response, but one that is about one third as large as that
predicted by our model (in which domestic population mobility is
assumed to be perfectly elastic).76 Given an intermediate respon-
siveness of domestic population, and the prospect of intermediate
responsiveness of international migration, we suspect that coun-
terfactual impacts might include meaningful declines in both
total population and worker utility.
Overall, we draw four main conclusions from this section.
First, our estimated counterfactual impacts on agricultural land
value are not sensitive to population reallocation within the
United States in the absence of railroads. Second, the absence
of railroads is likely to have caused substantial declines in total
U.S. population and worker utility for intermediate levels of in-
ternational labor mobility. Third, agricultural land values would
have continued to decline substantially, were railroads to be re-
moved, along with these declines in population and worker util-
ity. Finally, although the loss of agricultural land value can
generate only small direct economic losses as a share of the na-
tional economy, the accompanying declines in population or
76. The coefficient predicted by our model is 1þð1þþÞ

ð1þÞ , equal to 0.75 at our pre-
ferred parameter values.
worker utility would generate substantial losses in GNP or ag-

gregate welfare.
VIII. Counterfactual Transportation Responses to the
Absence of Railroads
In evaluating the importance of railroads to the U.S. econ-
omy, and whether railroads were indispensable in some sense, it
is interesting to consider whether other transportation infra-
structure investments might have compensated for the absence
of the railroads. Extending our baseline counterfactual analysis
and setting aside impacts on population and worker utility, we
report impacts on agricultural land value under alternative coun-
terfactual scenarios. These estimates effectively quantify how
much less (or more) market access might have declined in the
absence of the railroads due to particular endogenous responses
in the transportation network.
Prior to the railroads, many resources were devoted to build-
ing a canal network in the Eastern United States; in the absence
of the railroads, a system of canals might have been built through
portions of the Midwest and Eastern Plains. As described in
Section II, Fogel (1964) proposes a feasible system of canals
that would have brought 70% of the ‘‘infeasible region’’ within
40 miles of a navigable waterway. In Fogel’s estimates, and in
our preliminary extension of Fogel’s analysis in Section II, this
system of canals mitigates 30% of the intraregional losses from
removing railroads. These estimates require assuming how much
land values are affected by distance to a waterway, however, and
counties’ distance to a waterway is an imperfect proxy for what
counties actually value: access to markets.
To measure the impact of Fogel’s proposed canals, we calcu-
late county-to-county lowest cost transportation routes for a
counterfactual network database that replaces all railroads
with Fogel’s proposed extension to the canal network. Using
these costs to recalculate counties’ reduction in market access
in 1890 without railroads, and multiplying this decline by the
estimated impact of market access, we estimate that agricultural
land values would still decline by 52.4% with a standard error of
4.2% (Table VI, row 1). The proposed canals are a limited substi-
tute for the railroad network, mitigating only 13% of the losses
from removing railroads. While canals reach within 40 miles of
TABLE VI
COUNTERFACTUAL IMPACTS ON LAND VALUE, ALLOWING FOR TRANSPORTATION RESPONSES
Percent Decline
in Land Value
Baseline counterfactual without railroads in 1890 60.2 (4.2)
Allowing for transportation responses
1. Extended canal network 52.4 (4.2)
2. Improved country roads, wagon cost of 14 cents 47.5 (3.9)
3. Extended canal network and improved country roads 40.0 (3.7)
4. Increased water shipping rates, doubled 72.5 (4.2)
Notes. Each row reports the counterfactual impact on land value from the removal of railroads, given
some potential response in the transportation network (as described in Section VIII). In row 1, the railroad
network is removed and the canal network is extended. In row 2, the railroad network is removed and the
wagon freight rate is lowered to reflect improvements in country roads. In row 3, the railroad network is
removed and both adjustments are made from rows 1 and 2. In row 4, the railroad network is removed
and waterway freight rates are doubled. Robust standard errors clustered by state are reported in
parentheses.
many Midwestern areas, the railroad network provides substan-

tially better access to markets. This result is foreshadowed by the
remarkably dense railroad network in 1890 seen in Figure II.
Fogel’s proposed canals would have generated annual gains
of $50 million in the absence of the railroads, which does exceed
their estimated annual capital cost of $34 million. Fogel’s pro-
posed canals were not actually built, presumably because they
were made unnecessary by the presence of the railroads.
Indeed, using a network database that includes both railroads
and the canal extensions, we estimate that the proposed canals
generate an annual economic benefit of just $0.20 million.
As an alternative technological solution, in the absence of
railroads, there may have been substantial improvements in
road-based transportation. Fogel speculates that motor trucks
might have been introduced earlier, but a more immediate re-
sponse could have been the improvement of country roads. For
a counterfactual network database that excludes railroads and
reduces the cost of wagon transportation to the cost along im-
proved roads (10 cents a mile traveled, 14 cents for a straight
route; down from 16.5 and 23.1, respectively, in our baseline net-
work database), agricultural land values still decline by 47.5%
(Table VI, row 2). Adaptation through improved country roads
therefore mitigates only 21% of the loss from removing railroads.
We do not find that improving country roads is particularly com-
plementary with extending the canal network: doing both
together mitigates 33.6% of the loss from removing railroads

(Table VI, row 3), compared to their summed impact of mitigating
34.1%.77
This alternative technological solution is predicated on the
notion that the absence of railroads would heighten incentives to
improve country roads. In a world without railroads, we estimate
a $81 million annual benefit from decreased wagon costs; in a
world with railroads, we estimate a $50 million annual benefit
from decreased wagon costs. Railroads indeed reduce the gains
from decreasing wagon transportation costs, but there remain
large gains from improving country roads in a world with
railroads.
It is difficult to quantify whether the absence of railroads
might have encouraged the earlier introduction of motorized
trucking, but we can measure how much wagon costs would
need to decline to compensate for the absence of railroads. We
calculate counterfactual scenarios without railroads, decreasing
the wagon cost to 5 cents, 2.5 cents, and 1 cent per ton-mile.78
When replacing the railroads with a lower wagon cost of 5 cents or
2.5 cents, agricultural land values fall by 30.6% (3.0%) and 15.2%
(1.7%), respectively. Agricultural land values increase by 7.5%
(1.1%) when replacing railroads with a lower wagon cost of 1
cent, at which point the wagon rate is nearing the railroad rate
of 0.63 cent.
Notably, other counterfactual changes might exacerbate the
absence of railroads, whereas Fogel focuses on compensatory re-
sponses that mitigate the impact on transportation costs from
removing railroads. In particular, competition from railroads
may have dramatically lowered the costs of shipping by water-
way. Holmes and Schmitz (2001) discuss how waterway shipping
rates may have roughly doubled in the absence of the railroads,
due to increased holdup at trans-shipment points and adoption of
higher-cost shipping technologies. For a counterfactual network
database that excludes railroads and doubles the cost of water
transportation, we estimate that agricultural land values would
decline by 72.5% (Table VI, row 4). This economic loss is 20%
77. For this exercise, we calculate market access for a counterfactual scenario
that both includes proposed canals and reduces the cost of wagon transportation.
78. After adjusting for straight routes, the assumed wagon costs are 7 cents, 3.5
cents, and 1.4 cents per ton-mile.
greater than the baseline estimated economic impact from remov-

ing railroads.
IX. Conclusion
This article develops a new approach for estimating the his-
torical impact of railroads on the U.S. economy. Our analysis uses
a new database of county-to-county transport costs to character-
ize counties’ access to markets. Drawing on recent trade research,
changes in counties’ market access summarize the direct and in-
direct channels through which expansion of the railroad network
impacts each county in general equilibrium. We directly estimate
the impact of market access on counties’ agricultural land value,
which has an intuitive appeal even in the absence of the model:
locations benefit from increased access to markets through rail-
road network expansion, rather than access to railroads per se,
and this economic gain to each location is capitalized into the
value of agricultural land (i.e., the fixed factor). The empirical
analysis exploits county-level variation in market access, control-
ling for regional changes in agricultural land value and even local
changes in the railroad network.
Our estimates imply that railroads were critical to the agri-
cultural sector in 1890: the absence of railroads would have de-
creased agricultural land values by 60%. Railroads’ contributions
to the agricultural sector were largely irreplaceable, either
through extensions to the canal network or improvements in
country roads. Furthermore, declines in the agricultural sector
may have also affected total population in the United States and
workers’ utility.
Whereas Fogel’s estimates depend in large part on assuming
the impact on land values from changes in transportation dis-
tances, our empirical analysis ultimately lets the data estimate
how new railroads improve market access and how market access
raises land values. The data indicate that county land values are
affected strongly by market access and that railroads had a crit-
ical and irreplaceable role in increasing counties’ market access.
In contrast to Fogel’s analysis, alternative transportation im-
provements had a limited ability to substitute for the loss of rail-
roads. Our analysis draws on county-level data and a GIS
network database that was infeasible in Fogel’s era, along with
recent advances in general equilibrium trade theory, but our
model maintains the neoclassical framework underlying Fogel’s

social saving approach.
Compared with Fogel’s social saving approach, our market
access approach finds moderately larger economic impacts from
the railroads, and substantially larger impacts on GNP and ag-
gregate welfare once we consider potential impacts on population
and worker utility. Fogel’s approach and our approach both focus
on railroads’ impacts through the transportation of agricultural
goods, but Fogel’s estimates neglect ways agricultural land value
fails to bound the economic losses from impacts on the agricul-
tural sector.
Our analysis neglects many other potential benefits from the
railroads, following Fogel in focusing on gains within the agricul-
tural sector. We view this neglect as opportunities for further
research, rather than a presumption that railroads had minimal
impacts through other channels. For example, we have neglected
impacts on the manufacturing sector, for which railroads may
increase access to inputs and consumers. Furthermore, railroads
would generate direct gains to workers in the form of decreased
passenger rates (e.g., Fishlow 1965; Boyd and Walton 1971;
Leunig 2006). Whereas our analysis only measures static gains
from specialization and the exploitation of comparative advan-
tage, we suspect larger dynamic gains from increases in techno-
logical innovation. We hope that future research might quantify
additional channels through which railroads affected the devel-
opment of the U.S. economy, perhaps drawing on our measure-
ment of market access to quantify aggregate impacts in addition
to relative impacts. We also hope that our data on market access
will be useful when examining other changes in the U.S.
economy.
As a broader methodological contribution, this article dem-
onstrates a tractable approach to estimating aggregate treatment
effects in the presence of spillover effects. For general settings in
which spillover effects are at a national or global scale, some
amount of theoretical structure is needed to move beyond esti-
mating relative impacts in more affected areas. While dealing
with this empirical challenge requires some theoretical guidance,
the empirical analysis can then proceed in a fairly reduced-form
manner. In our case, drawing on a wide class of trade models, the
general equilibrium impacts of railroads are captured by measur-
ing the changes induced in counties’ market access. Empirical
research in all fields of economics is increasingly estimating
relative magnitudes by comparing areas that are relatively more

or less affected by some plausibly exogenous treatment, but we
hope our efforts might encourage similar attempts to exploit rel-
ative variation in addressing questions that are more aggregate
in nature.
Stanford University and NBER
University of Chicago and NBER
Supplementary Material
An Online Appendix for this article can be found at QJE
online (qje.oxfordjournals.org).
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RAILROADS AND AMERICAN ECONOMIC GROWTH:

A ‘‘MARKET ACCESS’’ APPROACH*

Dave Donaldson and Richard Hornbeck

methodology to focus attention on counterfactuals: in the absence

1. One alternative approach is to create a computational general equilibrium

impacts on each county from changes in the national railroad

2. For example, railroads may have had substantial economic impacts

The initial counterfactual analysis assumes that the popula-

to improved country roads would have continued in the presence

3. We see our methodology as a natural extension of Fogel’s intuition, drawing

More broadly, this article takes on the general methodologi-

5. In the absence of an economic model, the spatial econometrics literature

Section IX concludes. An Online Appendix contains accompany-

6. Indeed, the total cost of agricultural interregional shipments would have

For intraregional trade, defined as the trade from farms to

by using modern computer software and digitized county-level

7. Unless otherwise noted, we use Fogel’s preferred mortgage interest rate

Implementing this approach, we calculate the annual intraregio-

follow Fogel in assuming a relationship between agricultural land

III. Data Construction

III.A. Transportation Cost Parameters

goods to/from a railroad car, river boat, canal barge, or ocean

III.B. Transportation Network Database

11. Fogel considers trans-shipment charges as a subcategory of water rates, but

The second step adds the time-invariant locations of canals,

The fourth step refines centroid-to-network connections due

III.C. Limitations of the Network Database

20. Fogel recognized the importance of measuring this within-county distance

access to other U.S. counties. As a robustness check, however, we

Overall, we should expect that measurement of transporta-

III.D. Transportation Route Cost Calculations

III.E. County-Level Census Data

counterfactual analysis, which includes 455 additional counties

IV. A Market Access Approach to Valuing Railroads

changes in the national matrix of county-to-county trade costs.

IV.A. A Model of Trade among U.S. Counties

income Yo and faces a vector of prices Po, experiences indirect

There are costs to trading varieties across counties. Remote

IV.B. Solving the Model

We follow Redding and Venables (2004) in referring to this (in-

From equation (5), county o sends more goods to county d if

2. Land Rental Rate. While trade flows between nineteenth-

Firm market access (FMAo) is a sum of terms over all destina-

Firm market access is conceptually similar to consumer

Under the additional restriction that trade costs are symmetric

In words, a county’s market access can be expressed as the sum

land in county o will be more valuable if county o has cheaper

IV.C. Using the Model to Inform Empirical Work

counterfactual MAo into equation (10). We perform such calcula-

IV.D. From Theory to an Empirical Specification

First, although the model describes economic impacts in a one-

land not in farms has zero agricultural value.46 Unsettled land in

changes in county productivity are orthogonal to changes in

The results are not sensitive to our use of the MA approxima-

53. Throughout the empirical analysis, we work with the variable

8.28).55 In Section VI.B and the Online Appendix, we verify the

of – rather than –1. Typical estimates of  are substantially

IV.E. Main Empirical Specification

market access from 1870 to 1890.62 Darker shades correspond to

V. Estimated Impact of Market Access on Agricultural

62. Counties are separated into seven equal-sized groups.

Log Value of Agricultural Land

(1) (2) (3) (4) (5)

rather than by differential population growth among counties’

of – rather than –1. Typical estimates of are substantially

76. The coefficient predicted by our model is 1þð1þþÞ